Charitable Deductions

Giving to United Way, and to other nonprofit organizations classified under Section 501(c)(3) of the Internal Revenue Code, entitles taxpayers that file itemized returns to a tax deduction. The 501(c)(3) classification exempts these organizations generally from paying taxes and Section 170 of the Internal Revenue Code enables people who contribute to them to deduct their gifts on individual itemized returns.

Substantiating Charitable Contributions
Since 1994, no deduction has been allowed for any contribution of $250 or more that is not substantiated by a written acknowledgement from the donee organization. That acknowledgement must provide information on: (1) the date of the gift; (2) the amount of money or, when the contribution is other than money, a description of the property contributed; (3) a statement as to whether the donee provided the donor with any goods, services or other benefits in return for the gift; and (4) if the donee did provide such benefits, a description of those benefits and the donee's good faith estimate of their value.

In October 1995 the Internal Revenue Service issued final regulations regarding substantiation of contributions made by payroll deduction. These regulations provide that, for the purpose of applying the $250 threshold amount, the amount withheld from each paycheck is treated as a separate contribution. Therefore, only when $250 or more is withheld from a single paycheck is substantiation required. Under the regulations taxpayers may substantiate contributions made through payroll deduction with a combination of two documents: (1) an employer provided document such as a pay stub or W-2 and (2) a pledge card of other document prepared by or at the direction of the charity stating that no goods or services were provided in consideration of the contribution made by payroll deduction.

United Way of Central Virginia automatically sends a substantiation letter to all donors meeting the above criteria. If you hve not received such a letter and believe you need it or simply want it for your records, please contact our office. Unless otherwise stated, United Way does not provide any goods or services in exchange for contributions.

Other Tax Rules on Deductible Items
In the Tax Reform Act of 1986, Congress created an alternative minimum tax (AMT), which applies to high-income individuals who significantly reduce their tax liability by using deductions, credits, exemptions, and losses. The Omnibus Budget Reconciliation Act of 1993 allows a deduction for a contribution of appreciated property equal to the full fair-market value of the contributed property. This provision is effective for contributions of tangible personal property made after June 30, 1992, and contributions of other property made after December 31, 1992.

Certain out-of-pocket unreimbursed expenses related to volunteering also are deductible including the cost of travel connected with volunteer service for a charitable organization. The IRS allows 33 cents per mile for volunteers using a vehicle for charitable business (for example, driving disadvantaged youths to an event). Parking fees and tolls are deductible, as are reasonable payments for necessary meals and lodging during overnight trips while providing donated services.

The above text is general tax information. In real life every-day situations, the tax code may apply differently. Thus, it is recommended that the donor seek professional tax advice to determine how the tax code applies to any particular gift.