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Donating to charity? Count what you get back

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in Small Business Tax

Suppose you and your spouse attend a fundraising dinner for your favorite charity. The event costs $100 a plate, with the meals valued at $80. In that case, you can deduct the amount of your donation less the value of the benefit received, or $20.

Strategy: Obtain written substantiation from charities for such “quid pro quo contributions.” The charity must provide a statement for donations greater than $75 (even if the benefit’s value is less).

The rules are slightly different if you merely receive a small token in return. For instance, if the charity gives you a coffee mug or a key chain for making a gift, you may be able to deduct the full donation amount.

Here’s a summary of the current tax rules:

  • If the item cost less than $8.60 and you’ve donated $43 or more, you can deduct the full amount of the contribution. (The IRS indexes those amounts for inflation.)
  • If the goods or services cost more than $8.60 and you’ve donated between $43 and $75, you’re entitled to deduct the amount of your contribution less the goods’ or services’ fair market value (FMV).
  • If you’ve donated less than $43, subtract the FMV of the goods or services received (no matter what the cost of the item) to determine your deduction.

Tip: Special rules apply to donations for the right to buy tickets at college sporting events. Usually, the IRS limits the deduction to 80 percent of the cost.

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