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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

Are Contributions to Nonprofit Schools Tax Deductible?

Are Contributions to Nonprofit Schools Tax Deductible?

There are specific organizations that provide tax benefits to their donors. For example, the Internal Revenue Code provides tax incentives to people donating to organizations like nonprofit schools. However, these nonprofit schools must use the donation for educational and literary purposes because the benefits are not applicable if the school runs other activities outside charity, scientific, religious, and humanitarian purposes. 

Valuing your school donations

The tax deduction is allowed on cash and property donated to a nonprofit school during the academic year. However, the fair market value of properties contributed to the nonprofit school must be assessed on donation day. There are many valuation methods used to determine the type of property. The IRS insists that the property must be worth the property value in an open market. However, the IRS does not give out the method used to prescribe the property. For instance, if you're donating used clothes to a nonprofit school, the IRS guidelines suggest you check the value of those clothes in a thrift shop before sending them as contributions. You can also use online sources to value the clothing under certain conditions. 

Federal tax laws have various methods of evaluating a property. You are allowed to use any of these methods if it's able to assess the value of a property to a price a buyer is willing to pay in an open market. For example, if you contribute items that are not commonly sold, like pieces of art, the IRS suggests you hire an appraiser to determine their value in the open market.

Benefits you receive from the school

Some nonprofit schools award donors a gift or other benefits for their generosity. The deduction must be equal to the value of the gift or benefit given by the school program. However, no tax deduction is allowed if the gift has no significant value. For instance, if you receive a plaque with your name on it, the item has little value, which makes it non-tax deductible. On the other hand, the gift may have significant value in price but not in the open market. For example, if a certificate worth $100 to a local restaurant is given to you, ensure the deduction equals $100. 

Recordkeeping and penalties

However, the Internal Revenue Code has penalties for individual taxpayers that forge the value or overvalue their donations. The guilty party will pay up to 20% of the unpaid tax as interest on a 150% overvaluation. Those that overestimate their contributions by 200% will pay 40% interest on the value of the contribution. Plus, the donation may be disapproved by the IRS if you fail to submit the proper value of the contribution. The agency requires complete and correct documentation of donations, whether in cash or property, from the nonprofit school receiving the donation. If you are paying in cash, you must keep the bank statement, receipt, or canceled check. However, if the cash contribution exceeds $250, you must send an acknowledgment letter from the receiving school before deducting the donation from your taxes. 

Eligible taxpayers

Taxpayers donating to nonprofit schools must claim and itemize other deductions using Schedule A of Form 1040. The form makes it easy to itemize your donation; however, the method changes if you have more than $300. The revamp law in 2020 states that such people should use the standard deduction method to deduct their taxes. In 2021, the limit increased to $600 for a married couple filing a joint tax return but must use the standard deduction form. But is it better to itemize if the deductible amount is greater than the standard deduction amount in a year after filing your taxes?



Jim McClaflin, EA, NTPI Fellow, CTRC
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