• Charity Purchases and Auctions – Do You Get A Bigger Deduction Participating Online?

    19 September 2014
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    Americans are the most generous people in the world. According to Charity Navigator, “during 2013, total giving was more than $335 billion.”

    The internet is changing the landscape of most everything we do. The majority of Dagley & Co. clients come to us online and work with us remotely. That’s how, with an office in Washington, D.C., we have clients from all over the country and on four continents. The same is true for charity auctions. One of the premier online services for charity auctions is BiddingForGood. According to their website, they have raised over $248 million for non-profits and schools as of this writing.

    One thing that does not change – whether you attend one the various philanthropy events in Washington, D.C., in your city, or participate online – is the tax deductibility and documentation requirements.

    When a charity sells or auctions of property or services at a price in excess of value these are referred to as “quid pro quo” contributions or dual payments made that consist partly of a charitable gift and partly of consideration for goods or services provided to the donor.

    Quid pro quo in Latin is “something for something.” When used in the context of charitable contributions, quid pro quo contributions typically include the purchase of tickets for sightseeing tours, all-expense-paid trips, theatrical or concert performances, books or subscriptions to magazines, stationery, candy, and more. They are sold with a generous mark-up that is designed to help the charity in performing its functions. In these cases, the charitable deduction is the excess of the payment over the value received by the purchaser-contributor. For instance, when tickets to a show are purchased from a charity at a price in excess of the normal admission charge, the excess over the latter (plus tax) is a charitable contribution.

    Determining and documenting the amount of the purchase that represents the charitable portion is the key to being able to take a charitable tax deduction for quid pro quo purchases. Tax law requires charitable organizations that receive a quid pro quo contribution in excess of $75 to provide a written statement, in connection with soliciting or receiving the contribution, that informs the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the amount of the purchase that is in excess of the value of the property or service purchased and a good-faith estimate of the value of the goods or services purchased.

    How much should you get written off your taxes in exchange for an online or in-person donation? 

    • Example #1A taxpayer purchases a cookbook from a charity for $100. The charity provides the taxpayer with a good faith estimate of $20 for the value of the book in a written disclosure statement. Thus, the taxpayer’s charitable deduction is $80 ($100 minus the $20 value of the book).
    • Example #2A taxpayer attends a charity auction. The charity provides a catalog of the items for auction and a good-faith estimate of the value of each item. The taxpayer is the successful bidder for a vase valued at $100 in the catalog, for which the taxpayer bid and paid $500. The taxpayer’s charitable deduction is $400 ($500 minus the good-faith valuation of $100).
    • Example #3A taxpayer pays $40 to see a special showing of a movie for the benefit of a qualified charity. The ticket reads “Contribution $40.” If the regular price for the movie is $10, the contribution would be $30 ($40 minus the regular $10 ticket price).

    In short, the value of your donation and its good-faith estimate has an affect on your deduction, not your online vs. in-person participation. So don’t forget to keep good records and the required documentation when you give to your favorite charity and causes close to your heart and provide them to Dagley & Co. so that we can maximize your deductions and minimize your taxes. And if you can’t make it to your favorite charity auction and participate this year, consider going online so that you too can make a difference and still get the tax deduction.

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