A donation invoice is a form that can be kept as a receipt after giving a donation to charity. A request for a donation should always be made when donating to a 501(c)(3) tax-exempt organization for tax purposes.
Table of Contents
- What is a Donation?
- Donation Types
- What is Considered Tax-Deductible?
- How Much of a Donation is Tax-Deductible?
- How to Donate to a 501(c)(3) Charity
A donation is any type of gift from a donor to a donee, commonly a charity, in the form of cash, goods, or services. In the United States, there are tax benefits from giving certain types of donations to qualifying 501(c)(3) charities.
Below is a list of donation types along with its tax-deductible status:
- Blood (plasma) Donations (Not Tax-Deductible) – Can be given a maximum of every eight (8) weeks at a Red Cross Location.
- Cash Donation (Tax-Deductible) – Sending payment either through cash, credit card, or other funding sources.
- Clothes Donation (Tax-Deductible) – Clothing makes up the largest portion of donated items that people give which is why some of the largest charities in the world happen to be Goodwill and the Salvation Army.
- Egg (female) Donation (Not Tax-Deductible) – The process of a woman donating a reproductive egg.
- Food Donation (Tax-Deductible) –
- Hair Donation (Not Tax-Deductible) – The IRS views donations associated with the human body.
- In-Kind (Tax-Deductible) – Any kind of non-perishable physical good. Examples include clothing, furniture, equipment, etc.
- Vehicle Donation (Tax-Deductible) – Used cars and motorcycles that are hard to sell can be discarded by giving to a charity often claiming more than the vehicle is worth. Almost all charities accept car donations. Use the Car Donation Wizard to find a car donation center.
Even if a charity is tax-exempt, you still need to verify with the IRS (Pub. 526) to see if the item donated is tax-deductible. For example, the Red Cross is a 501(c)(3) tax-exempt organization, however, donors cannot deduct the value of their blood given.
- Individual Filings (26 U.S. Code § 170(b)(1)(B)) – Up to 50% of their adjusted gross income (line 36 on IRS Form 1040 Schedule 1).
- Corporate Filings (26 U.S. Code §170(b)(2)(A)) – The total deductions shall not exceed 10 percent of the entity’s taxable income.
Donating to a 501(c)(3) charity will not only help an organization doing good works for the community, but it may also help the donor’s tax burden at the end of the year. Use the simple guide to find out how to donate and accomplish both helping a profound cause but also reaping ay rewards it may bring to your tax filing at the end of the year.
Step 1 – Deciding the Charity
The charity selecting process is often decided mainly on the type of donation that will be made. For example, if the donation is clothing, most likely Goodwill or the Salvation Army would be the best fit with their drop-off centers located nationwide.
Step 2 – Verifying the Charity is a 501(c)(3) Organization
No matter how small or large the organization, it’s important to check its tax-exemption status with the IRS. This is to verify that the organization holds non-profit status and is able to receive donations that are tax-deductible to the donor.
- Use this link to verify a 501(c)(3) organization: https://apps.irs.gov/app/eos/
Step 3 – Making the Donation
When making the donation, it’s important to obtain the proper documentation based on the value of the goods or services. See the amounts below in order to obtain a proper receipt and appraisal, if needed, in order to properly donate in accordance with IRS guidelines.
- Up to $250 (26 U.S. Code § 175(f)(8)(A)) – No receipt required for any contribution made to a charity up to $250 in cash or value.
- More than $500 (26 U.S. Code § 175(f)(11)(B)) – Receipt required and a detailed description of the goods or services must be provided. In addition, the signature of an organization representative must be included along with their name clearly printed.
- More than $5,000 (26 U.S. Code § 175(f)(8)(C)) – Receipt required with a full description of the items donated along with the signature from an agent of the charity. In addition, a qualified appraiser (defined under 26 U.S. Code § 175(f)(11)(E)) must provide an appraisal that meets the amount being claimed for donation.
Step 4 – Making the Receipt
After the donation has been made it’s time to write a receipt so the donor has proper documentation for the IRS. In accordance with IRS rules (26 CFR § 1.170A-13(f)(2)), the receipt must be written by the organization and contain the following:
- Amount ($) the individual paid and a description of any property donated including value;
- A verified statement that the donor did not receive anything in return for their contribution;
- Name and title of the individual authorizing the receipt; and
- The organization name and its tax identification number.
Step 5 – Keep Your Receipt for 3 Years
At the end of the year, the Internal Revenue Service (IRS) may request documentation if they believe the number of donations is excessively higher than the average filer. In accordance with IRS Guidelines, a donation receipt should be kept by the filer for a period of three (3) years. Therefore, after the doner receives the receipt it should be kept in a safe and accessible place in the event of any type of audit.