It can feel like schools are always underfunded and raising more money to fund their operations or special programs, and it can be difficult to say no whenever you’re asked to chip in. Whether you’re giving back to an alma mater or donating to a neighborhood school, many contributions to schools can help you lower your income tax liability because they qualify for the charitable donation deduction. However, before you start counting how much your donations are going to save you, make sure you know the rules for how much you can deduct and the records you have to keep to make sure your deduction won’t be disallowed by the IRS.
Donating to Schools
In general, donations to schools will generate a deduction on your income taxes because most schools qualify as charitable organizations. According to the tax code, to qualify as a charitable organization, the school must maintain a regular faculty and curriculum, as well as having a regularly enrolled student body at the place where its educational activities take place. This includes both public and private schools, as well as all trade schools, colleges and universities. If you’re not sure of a school qualifies, you can ask the school itself or use the IRS Tax Exempt Organization Search website to verify its status as a charitable organization.
Valuing Donations of Goods
When you give cash to a school, it’s easy to determine the amount you can write off on your taxes. However, when you donate anything other than cash, it can get a little trickier because most goods don’t have a readily available price tag attached.
If you’re donating goods, you must determine their fair market value to figure the amount you can write off on your taxes. The IRS defines the fair market value as the amount a willing buyer would pay a willing seller, with neither under pressure to make the exchange, but doesn’t give a specific formula for calculating the deduction. For example, if you are donating used books to a school, you can’t use the price of a new book. Instead, look at what similar books would sell for at a thrift store or used book store in the area to figure how much you can deduct.
Some donors prefer to give assets that appreciate, like stocks, instead of selling them first and donating the proceeds to charity. This can generate double tax savings by minimizing the income you must report on your taxes and maximizing your donation deduction. First, as the donor, you don’t have to report any gains on your taxes from the sale of the stock. Second, as long as the gains would be classified as long-term capital gains – generally, that you have owned the asset for more than one year – you can deduct the full fair market value of the asset at the time of the donation.
For example, say you have stock that you purchased for $5,000 years ago and it has now more than doubled in value to $11,000. If you were to sell the stock and donate the proceeds, you would have to report $6,000 in capital gains on your taxes and then would receive an $11,000 tax deduction. But, if you simply donate the stock to the school, you avoid paying income taxes on the $6,000 of gains, and you still get to claim the full $11,000 deduction on your taxes.
Though you usually don’t have to submit receipts to the IRS when you file your tax return, you must have the appropriate documentation to back up your charitable donations in the event you get audited. For cash donations of less than $250, you can use a bank record, like a credit card statement or canceled check, that shows the name of the organization, the date you made the contribution and the amount you gave; a receipt from the organization showing the same information; or a pay stub or other document from your employer that shows the date and the amount of the contribution if you made the contribution through a payroll deduction. For cash donations over $250, you must have a written acknowledgment of the contribution from the charity that includes the amount you gave, whether you received anything in exchange for the donation and if so, the value of the goods or services you received, or, if applicable, a statement that you received only an intangible religious benefit, such as admission to a religious service. So, the answer to “What is the most you can claim for charitable donations without a receipt?” is less than $250.
For donations of goods worth under $250, you can support your deduction claim with a statement from the school showing the name of the school, the date and location of the contribution, and a reasonably detailed description of what you donated. You must also keep written records showing additional information, including the condition of the items, if there were any conditions on your donation, and the fair market value of your donation. But, you can also keep a record yourself of the same information if it’s impractical to get such a receipt, such as if you left donated clothes in a drop bin. If the donation is valued between $250 and $500, you must have a written receipt from the organization as well as the written information mentioned above for your own records.
If the donation is worth between $500 and $5,000, you must add to your records how you came to own the property, when you obtained the items and the cost basis for the items, unless you're giving publicly traded stocks. If you donate an item or group of similar items worth more than $5,000, you also need to have an appraisal done to validate the fair market value of the items.
Itemizing to Claim Deductions
Even if you meet all the requirements to claim a tax deduction for your donation to a school, it will all be for nothing if you don’t itemize your deductions. When you file your taxes, you have the option to claim either the standard deduction for your filing status or the total of your itemized deductions, which include mortgage interest, medical expenses, and state and local taxes in addition to your charitable contributions.
The standard deduction has increased substantially in 2018 to $12,000 for singles, $18,000 for heads of household and $24,000 for married couples filing jointly, which makes it less likely your school donation will actually save you money on your taxes. For example, say you paid $5,000 in mortgage interest, $4,000 in state taxes and made a $1,000 donation to a school. The total of your itemized deduction is only $10,000, so no matter what filing status you are using, it doesn’t make sense to give up the larger standard deduction to claim the sum of your itemized deductions, including the charitable contributions.
In general, you can’t deduct amounts that you give to a charity for which you receive a personal benefit. For example, if you buy a cookie at a school bake sale, you can’t deduct the cost because you bought it at a school fundraiser. In a school context, this also can result in people claiming a charitable deduction for the amounts that they paid that would normally be classified as tuition or fees. For example, if a private school requires that you donate $8,000 each school year before your child can enroll, you can’t claim a deduction for that donation. But, if you choose to give above and beyond what is required for enrollment, you can deduct that extra giving. For example, if tuition is $8,000, but you give $15,000 to the school out of the goodness of your heart, you can deduct the extra $7,000 as a gift.
In addition, you can’t claim a charitable contribution for the value of your time or expertise. For example, say that you are an attorney and you volunteer to spend 10 hours teaching a class about constitutional law. Even if your typical hourly rate for doing legal work is $500 per hour, you can’t claim any tax write-off for the value of the time you spend volunteering at the school. However, you could claim a charitable deduction for any expenses incurred as part of your volunteer work. For example, if you also donated 30 textbooks on constitutional law to the school, you could deduct the fair market value of those textbooks on your taxes. Similarly, if you drive 28 miles from your office to the school and back to teach the class, you can deduct the cost of driving. For 2018, the mileage rate for charitable miles is 14 cents per mile. So, your 28 miles of driving would net you an additional $3.92 on your charitable donation deduction.
Finally, you can’t deduct contributions to any individuals. For example, if you know a needy child and offer to pay his or her school expenses, you can’t claim a charitable deduction for your generosity. Similarly, you can’t deduct the value of gifts that you give to teachers or other school employees, even if the gifts aren’t required. However, there is a minor exception if you host a student who lives with you and you pay expenses on that student’s behalf. To qualify, the student must be in the 12th or lower grade, must live with you under a written agreement between you and a qualified organization as part of an educational program and can't be related to you or your dependent. If you meet all of the requirements, you can deduct up to $50 of expenses per month the student lives with you.
Limitations on Tax Deductions
You are limited as to how much of your charitable donations can be written off on your taxes each year, based on your adjusted gross income. For cash donations, your tax deduction can be as high as 60 percent of your adjusted gross income for the year. For noncash donations, the limit is typically 50 percent of your adjusted gross income. However, if you donated appreciated items and are deducting the fair market value of the items instead of your basis, you’re limited to a deduction of only 30 percent of your adjusted gross income.
If you give more than you’re able to deduct in any give year, you’re allowed to carry forward the excess donation amounts to the next year. However, you must claim the deduction if you’re eligible for it – you can’t opt not to take all or a portion of the deduction in a year you’re entitled to claim it because you expect to have a bigger tax liability the following year. In addition, your ability to deduct the contribution expires five years after the contribution. So, if you haven’t used the deduction by then, you lose it.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."