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Feast on quid pro quo contributions

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in Small Business Tax,Small Business Tax Deduction Strategies

Suppose you and your spouse attend a fundraising dinner for your favorite charity. The dinner cost you $100 each for a total of $200. But you can’t deduct any charitable donation to the extent you receive a benefit in return. The tax law calls them “quid pro quo contributions.”

Strategy: Obtain a written statement from the charity. Make sure it states the value of the dinner. Then you can write off any difference as a charitable donation.

To qualify for a deduction of $250 or less, you must have a bank record (such as cancelled check or credit card statement) or a receipt from the charity. Let’s say each meal is valued at $40 for a combined $80. In this case, you can deduct $120 ($200 – $80). Every little bit adds up.

The rules are slightly different if you receive just a small token in return. For instance, if the charity gives you a “low-cost item” such as a keychain or coffee mug for making a donation, you may be able to deduct the full amount.

The limits are indexed for inflation. Here’s a quick lowdown for 2014.

  • To qualify as a low-cost item, it must cost the charity no more than $10.40, and the contribution received must have been at least $52. These items must bear the organization’s name or logo.
  • Low-cost items must have either a fair market value of $104 or less or be worth 2% or less of the donor’s payment, whichever is less.

Tip: Certain itemized deductions, including charitable deductions, are reduced for upper-income taxpayers.

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