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ExpressTaxExempt Blog

Tuesday, February 7, 2017

Tax Deductible Contributions to Nonprofit Schools

Taxpayers can claim deductions towards their annual tax bill from donations they make to recognized 501(c)(3) organizations. Qualified 501(c)(3) groups typically include nonprofit schools operating solely for literary and education purposes.

But if the school significantly participates in activities that are unrelated to its charitable purposes, then the donation may not be tax deductible.

Here are some relevant guidelines from the IRS about donating contributions to your local nonprofit schools:

Value of School Donations
When filing your personal taxes, you can deduct the monetary value of cash or items you donated to a nonprofit school during the tax year. The process requires you to determine the fair market value of the donation on the day you gave it away.

There are various ways to find the valuation based on the type of item, and while the IRS won’t endorse one method over the other, they firmly state that the value must accurately indicate pricing that the item could sell for in an open market. An example would be donating clothes - you could check local thrift shops to find out how much the clothes would sell for or find prices from online stores selling similarly conditioned clothing.

Receiving Benefits from Nonprofit School
If the school gives you a gift or some benefit in return for your contribution, then the IRS requires you to reduce the value of your donation by the value of the gift you received from the school. The gift may be something of little to no monetary value such as a certificate, card, or plaque - in such a case, you won’t have to reduce your donation. But if the school happens to give you a $50 shopping card, you’ll need to subtract that amount from the value of your contribution.

Proof of Contribution and Penalties
Beware of filing overvalued charitable contributions. The IRS charges 20% of the underpaid tax from a valuation that exceeds 150% of its actual value and 40% from valuations exceeding 200% of normal value.

Furthermore, the IRS can deny your deduction if you don’t have proper documentation. You are responsible for maintaining a record of all your contributions - cash or items. You should have a description of the contribution and the name of the organization that received it. If your donation was cash, you should provide a bank statement, canceled check, or receipt. For large cash contributions, usually over $250, the IRS requests a written acknowledgment or receipt from the organization before deducting the donation.

Claiming tax deductible contributions towards nonprofit schools is only possible through itemizing your personal expenses. Taxpayers can claim itemized deductions on Schedule A of IRS Form 1040 if total deductible expenses are greater than standard deductions for the tax year. And for schools needing to report received contributions, you can do so by submitting a Schedule B with your IRS 990 form.



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