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 2010 and for 2011). 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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