Last week, my husband and I attended an event for one of our favorite charities. For a $160 donation, the two of us enjoyed a nice steak and lobster dinner and an open bar. This was a great deal for the charity – since all of the food and drinks had been donated. At the silent auction, I successfully bid on a dinner party for 4, hosted by a famous local chef who donated the item. And I got a great deal on that dinner – it normally goes for $300, and all I paid was $150! My husband won the raffle – for five dollars, he entered for the chance to win all of the money in the pot, and scored a whopping $510! Of course, being the charitable person that he is (and with a bit of urging), he donated the entire amount back to the charity. Finally, after watching the gut-wrenching stories about all of the children who benefit from the charity’s work, we donated an additional $250. If you haven’t figured it out yet, I REALLY like this charity. BUT: for tax purposes, how much did I really donate? The answer isn’t that simple…let’s go one by one:
- Dinner and drinks: The charity orally tells me that we get a full $160 deduction because all of the food and drinks were donated. But that’s not the rule! The deduction is limited to the excess of the amount we paid less the value of goods and services received. Additionally, for contributions in excess of $75, the charity is required to provide a written statement that includes the amount of the contribution and the value of such goods and services. A sample letter can be found here.
- Dinner party: Not surprising, there is no charitable deduction. I received dinner for 4 valued at $300 and paid only $150. It is irrelevant that the dinner party was donated.
- Raffle entry fee: No luck here either. First, for those who didn’t win the raffle, there’s no deduction for the $5 entry fee. The IRS thinks that you paid $5 for the chance to win – which means you got something in return for your $5.
- Raffle winnings: The news gets worse. On winning the raffle, my husband has $505 of taxable income (yikes!!). Thus, when he donates it back, he gets a deduction, but it’s a wash since he had to include the winnings in income… Had he not donated it back, we would have had taxable income from a charitable event!
- Donation of $250: The IRS says that I can’t claim a deduction for $250 or more unless the charity provides a “contemporaneous written acknowledgment.” Had the donation been less than $250, my cancelled check would have sufficed. A “contemporaneous written acknowledgment” that includes the nature of the payment, amount of the payment, and whether any goods or services were provided to me in exchange for the payment (see “dinner and drinks” above). Without this item, no deduction! A sample letter can be found here.
Looking back, I’m really happy that my husband and I were able to support this worthwhile cause. Maybe we didn’t get a lot of tax breaks, but should that really matter? After all, we supported a great cause and had a lot of fun in the process.