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Charitable Contributions: Intention Does Not Equal Deduction

Tax and Financial News

August, 2009

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Charitable Contributions: Intention Does Not Equal Deduction

How often have you been called by the Fraternal Order of Widget Makers or the Benevolent Fund seeking donations for a supposedly charitable purpose? How many times have you made a commitment on the telephone when you had never even heard of the organization?

If you are like many people, this has happened to you more than once. An organization is putting on a show to raise money for a local animal shelter - for only $45 you will get a ticket to see your favorite rock band. Not a bad price for a good act. And then you're told that the ticket proceeds (less expenses) will go to fund the shelter's outreach programs and the entire price is tax deductible. What a deal!

At the end of the year, you bring your charitable receipts to your friendly CPA and, when the return is completed, you notice there is no deduction for the ticket. You ask why and are told that 1) the ticket did not state the $45 was deductible and 2) you canÂ’t take a charitable deduction if you received something of value. You feel like you've been cheated. The truth is you were cheated, but it's too late to do anything about it. Even if you never intended to see the show but just wanted to contribute, you are out of luck.

Here are a few tips to help protect you from the predatory sales practices of so-called charitable organizations.

First and foremost, never buy anything from an organization you are not familiar with. Any organization can claim to be a qualified charitable group and ask for money. In the wake of recent natural disasters, many people claiming to represent a relief organization seeking contributions were only trying to relieve you of your cash.

If you receive a solicitation from an unknown organization, ask first if your donation or ticket purchase is tax deductible. If you are told it is not deductible, at least you'll know that you are dealing with an organization with some scruples. In this case, if you are so inclined, you may agree to a purchase on the condition that you can first check the group out with the local Better Business Bureau. A reputable organization will have no problem with this. A less than reputable organization will balk at the suggestion and you should refuse to do business with them.

If you purchase a ticket to a concert or for a raffle and you are told that the payment qualifies for a charitable deduction, this is simply not true. Tax law clearly states you cannot get a deduction if you receive something of value in return. A portion of the contribution might be deductible – but certainly not all of it.

Let's say that you are asked for a donation and told that the payment is tax deductible. You should still avoid making a snap decision and instead ask the representative about the organization. For example, one national charity always sends information along with an invoice showing the amount you pledged. This gives you the opportunity to check out the organization before parting with your money.

Start by reviewing the material that the organization sends you - you might be able to glean enough information from it to decide whether the group is reputable. If not, take a look at the charity's website, which should provide information about the charityÂ’s activities, accomplishments, revenues and expenditures. Funding sources should also be easy to find. As a rule, the higher the percentage of funds used for program services, the better managed the charity is and the more likely they will be to use your donation for its intended purposes.

In order to be tax deductible, a donation must be made to a specific type of organization. If it is not of a type listed as qualifying on the Internal Revenue Service's Publication 526 website, you will not be able to take the deduction. The IRS also provides a website listing all qualifying organizations it has in its database. Please note that churches are not necessarily required to qualify through the IRS and, accordingly, might not be listed on this website.

A final place to check out a charity is at www.give.org, a website operated by the Better Business Bureau and designed to help donors evaluate charitable organizations. In order to receive the Better Business BureauÂ’s certification, a charity must undergo rigorous scrutiny.

In these difficult economic times, more and more charities are seeking ways to enhance their income. Unfortunately, this opens up the opportunity for some to masquerade as qualifying organizations and fleece the general public. Take care when responding to requests for contributions from all organizations, but especially those you do not know. If you have any questions about the deductibility of a donation or the reputation of a charity, give us a call. We will be glad to discuss the situation with you.

Happy August - be careful of school zones if your schools start back this month.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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