Donations and Tax-Exempt Organizations: US version

Taxpayers who make donations to tax-exempt organizations, such as charities and churches, have some new rules to follow regarding the deductibility of their donations. And, tax-exempt organizations themselves are faced with sweeping changes that affect donations as well as filing and record-keeping requirements. Here is some information to help you learn more about how the new rules may affect you:

Q. What do I need to do in order to claim a deduction for money I donate to charity?
A. For any cash contribution – which includes donations made via cash, check, electronic fund transfer or credit card – you must obtain and keep either a written communication from the charity or a bank record (such as a bank statement, cancelled check or credit card statement) that includes the date, the amount of the donation, and the name of the charity.

Q. How about donations of used clothing or household goods? How do I make sure I can claim a deduction when I donate these items?
A. In order to qualify for a tax deduction, the clothing or household goods you donate to a tax-exempt organization must be in good used condition. The exception to this rule is an item for which a deduction of more than $500 is claimed if you submit a qualified appraisal of the item along with your tax return.

Q. When do I need a “qualified appraisal” for an item I donate?
A. For a contribution of property with a claimed value over $5,000, a qualified appraisal is required. Under the new tax laws, a qualified appraisal must be conducted in accordance with generally accepted appraisal standards, by a qualified appraiser who has either earned an appraisal designation from a recognized professional appraisal organization or has minimum education experience. The appraiser must also have experience in appraising the type of property in question.

Q. I am responsible for a small charity run by a handful of volunteers. In past years, we had no federal filing requirement. Has that changed?
A. Yes. Now, all tax-exempt organizations except churches are required to file some version of Form 990 annually. Small charities may only have to file the e-postcard version of this form. Keep in mind that the penalty for non-filing can be serious: a tax-exempt organization that fails to file for three years can have its tax-exempt status revoked.



Remember, a professional accountant can help you with this and other tax issues you may encounter. Just give us a call or email us at tax@yyconsulting.com.

Reduce Tax By Donation

Do you know...

That you may be able to reduce your income tax by donating to a registered charity? You can verify whether a charity is registered by searching for it in the CRA Charities Listings.

In 2006, the first $200 you donate is eligible for a federal tax credit of 15.25% of the donation amount. After the first $200 of charitable donations, the federal tax credit increases to 29% of the amount donated over $200. You may also be eligible for provincial or territorial tax credits based on the applicable provincial or territorial rates.

You do not have to claim all of the donations you made this year on your current-year return. You can carry forward any donations you do not claim in the current year and claim them on your return for any of the next five years. Married couples or common-law partners can pool their donations and claim them on one return.

Please talk to your accountant if you need help on your income tax return.