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Can I Deduct That?

Can I Deduct That?

The information you need so that your group's supporters can get the full advantage from their tax-deductible donations.

by Sandra Pfau Englund

March 2011

Donations to nonprofit organizations are often tax-deductible. But do you know when? And do you provide your supporters (including yourself!) with the information they need to take those deductions? These basics will help you to understand what you can and what you can’t take off your taxes.

Generally, any gift or contribution for which the donor does not receive anything of substantial value in return is tax-deductible. Here are some examples.

Deductible: A parent makes a $20 contribution to the PTO rather than participating in the latest fundraising drive. The contribution is tax-deductible.

Not deductible: A parent purchases $20 of wrapping paper or cookie dough during the latest fund drive. The amount paid for the products is not tax-deductible, because the parent received something of value in return for the amount paid.

Deductible: A local restaurant contributes a $25 gift certificate to the school’s auction. The value of the gift certificate is tax-deductible for the restaurant.

Not deductible: A teacher makes the winning bid of $25 on the gift certificate. The amount paid is not deductible, because the teacher received the gift certificate in return for her bid. However, if the teacher bid $35 for the gift certificate, then $10 of the amount paid may be tax-deductible. In that case, the PTO must provide a receipt showing the amount paid, the value of the item purchased, and the amount that qualifies as a contribution.

Deductible: The IRS allows tax deductions for mileage and other out-of-pocket expenses. To take a deduction, you must keep written records of the mileage, including the date driven and the name of the nonprofit group for which the driving was conducted. The IRS standard mileage rate for charities may be used (14 cents a mile for 2013). If the donor opts to use actual auto expenses instead of the standard mileage deduction, the operating expenses must also be recorded. For other out-of-pocket expenses, keep written receipts showing the costs paid for items donated to the PTO.

Not deductible: The IRS does not allow a tax deduction for the value of someone’s time or service. In addition, you cannot deduct childcare expenses incurred to enable you to volunteer your time.

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Receipts

Written receipts are required for cash gifts of $75 or more. Receipts should always be provided for non-cash gifts, including out-of-pocket expenses donated on behalf of the group. The IRS requires a qualified written appraisal for non-cash gifts valued at $5,000 or more. Frequently, appraisals are recommended for non-cash gifts valued at $1,000 or more. Penalties starting at 20 percent of the amount of underpaid taxes may apply if donations are overvalued.

It’s a good idea to provide a receipt or acknowledgment for all donations as a way to thank donors and provide them with a receipt for their tax records. Receipts should include:

  • The name of the organization to which the donation was made and its tax-exempt status [“a 501(c)(3) charitable and educational organization”].
  • The date the donation is made.
  • The amount of the donation.
  • A statement regarding whether anything of value was received in return for the contribution. For instance, if an auction bidder paid $35 for the restaurant certificate, the receipt should note the price paid, the value of the certificate, and the amount that is tax-deductible.

What if your PTO has not applied for formal tax-exempt status (called 501(c)(3) status for the section of the federal tax code that PTOs fall under)? There’s no guarantee that the IRS will consider contributions made to a PTO tax-deductible unless the organization has applied for and received recognition of its tax-exempt status from the IRS.

Sandra Pfau Englund is an attorney specializing in PTOs and other nonprofit groups.

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Comments

  1. avatar

    Posted by Craig on Apr. 23, 2014

    I'm interested in how you phrased your question. It would be fine for you to finance and run an event and to donate 75 percent of the proceeds after expenses to the school (and keep 25 percent for the PTO). Your question sounds like you're thinking of it as a loan, which might be OK (I'm not sure) but might make the school accounting people, in particular, a bit nervous.
  2. Posted by - Rebecca on Apr. 23, 2014

    Is it legal for our PTO to front the principal $2000 for a bingo event and then receive the $2000 + 25% of profits?
  3. avatar

    Posted by Rockne on Mar. 19, 2014

    Hi Thomas -

    Caveat: not a lawyer or accountant.

    But my understanding is that: Provided your donation is to the school and the school is a non-profit, then yes, your entire donation would be deductible. It's akin to donating by credit card, where 1% or 2% of the donation goes to the credit card company. Those costs are legitimate costs for the non-profit and don't effect your deductibility.
  4. Posted by - Thomas on Mar. 19, 2014

    Hello....if a school is using a company (not a non-profit) for a jogathon and half of the money given by a supporter goes to the school and half of the money goes to the company (for profit to be clear) is any or all of the contribution deductible?
  5. Posted by - Esmeralda on Jul. 08, 2013

    If someone sponsors an individual to play in a golf tournament, can the donor receive full credit for the entire sponsorship amount since they are not the ones receiving any of the goods or services the golfer that's being sponsored will be receiving?
  6. Posted by - bsure on May. 08, 2013

    what if a person receives a gift and then donates it to an organization. it is worth money to them. can they deduct the amount it sells for if they provide the entire proceeds to the organization.

    lets use the ymca or a church organization as the example.
    I am in ny.
    thank you for your time.
  7. avatar

    Posted by Rockne on Apr. 19, 2013

    Hi Marisol -

    If you had a minimum bid, you are certainly well within your rights not to grant the item to someone who bid below that. It will be your call. Some items, you may just want to take what you can get. Other items, as Rose mentioned, there may be good reason (or even requests by the donor) not to award the item.

    But basically, you are certainly well within your rights not to award the item, since you did have a posted minimum bid.

    Tim
  8. avatar

    Posted by Rose C on Apr. 19, 2013

    Hey again Marisol,
    Thought of one more thing. If you do have folks donating items like a week's stay at a vacation spot or perhaps expensive sports tickets, a minimum bid requirement really does make sense. In these cases, the donor is giving something that could be worth a great deal and the intent is to get a nice chunk of money to the school. The intent isn't for a bidder to walk off with something like a week at a beach house for almost nothing. So, in those cases in particular, it would make sense to require a minimum and give the donor the option to pull it if no reasonable bid is placed.
  9. avatar

    Posted by Rose C on Apr. 19, 2013

    Hi Marisol,
    Hopefully, this doesn't happen too often. But if it does, it's more likely that a group would just take the bid. Disappointing, for sure. But, often groups figure the item was donated and while the bid is low, it is at least something that we can put to use for the group. You can consider making it very clear up front to your auction guests that they must bid at least the minimum needed or the item would not be available. But be careful of the language so it isn't off-putting. Good luck!
  10. Posted by - Marisol on Apr. 18, 2013

    If only one person bid on an item at a silent auction but it was below the minimum bid, should the person still get the item they bid on?
  11. Posted by - EFR on Jan. 07, 2013

    I would like to donate money to the PTO for new uniforms for the soccer team. The PTO already uses PTO funds to partly finance this particular school team sport. The PTO has suggested that 'directed' donations can not be accepted because the PTO might be seen as acting as a bank. I would argue that any funds donated that further its purpose should be acceptable. Can you explain why a directed donation in support of a program that is already partly funded by the PTO is not OK. I also need to know because I may volunteer to be the Tresurer next year and need to understand the rules.
  12. avatar

    Posted by Craig on Nov. 08, 2012

    Kathleen -- Yes, you're more than welcome to post a question here, on our Ask a Question forum:

    http://www.ptotoday.com/answers

    or on the message boards:

    http://www.ptotoday.com/boards

    We'll try to help with whatever information we can provide.
  13. Posted by - kathelleen parsons on Nov. 08, 2012

    i have a question, but I am not sure if this board is still active.
  14. Posted by - CGW on Feb. 21, 2012

    Sandra,

    I was wondering about the statement, "If a local restaurant donates a gift $25 certificate to our silent auction, the value of that certificate is tax deductible for them."

    I am a small business and just wanted to make sure I understood the details here. Can you reference the portion of the IRS code that covers this deduction for businesses?

    Thanks so much,

    Christopher
  15. avatar

    Posted by Craig on Dec. 14, 2010

    You should talk to an accountant or tax preparer about your specific situation. In general, fee for services is considered taxable income.
  16. Posted by - Joao on Dec. 14, 2010

    Hi. If I provide free tutorship for university students, is there a way I can write that off as charity or any other category?

    I'm currently not a member of any institution. I'm providing the tutoring services totally free, voluntarily.
  17. Posted by - LIH on Feb. 01, 2010

    If a local restaurant donates a gift $25 certificate to our silent auction, the value of that certificate is tax deductible for them.

    If a local photographer or private tutor offers a gift certificate for a free session, is that deductible for them? I understand the time/services are not deductible.

    Thanks!
  18. Posted by - Lorraine on Feb. 11, 2009

    Please note that as of 2008, the IRS requires all Non-Profit organizations to file a 990 form regardless of how much income is made, even if you didn't earn any income.

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