Donations to qualified 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 understand what you can and can’t take off your taxes.
Generally speaking, you can deduct contributions only if they’re made to a qualified organization. Religious institutions and governments are tax-exempt but all other organizations (including school PTOs) must apply to the IRS to be recognized as qualified 501(c)(3) organizations.
Are donations to public schools tax-deductible? Yes. A public school is an educational organization that is run by a public government entity (e.g., a state or local school board). As long as your contribution is for a public purpose, not for the benefit of a particular student or teacher, then it’s probably tax-deductible. (See the examples below for more explanation.)
What if my PTO hasn’t applied for federal 501(c)(3) tax-exempt status? 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 exempt status from the IRS.
Items That Are Tax-Deductible (and That Aren’t)
Generally, any gift or contribution for which the donor doesn’t 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.
Not deductible: A parent purchases $20 of wrapping paper or cookie dough during the latest fundraising drive. The amount paid for the products isn’t tax-deductible because the parent received something of value equivalent to 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 isn’t 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 might 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). 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 doesn’t allow a tax deduction for the value of someone’s time or service. In addition, you can’t deduct child care expenses incurred to enable you to volunteer your time.
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 might 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 to 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 (for example, “ABC Elementary PTO, a 501(c)(3) charitable and educational organization”).
The date the donation was 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.
Sandra Pfau Englund is an attorney specializing in PTOs and other nonprofit groups.
Originally posted in 2004 and updated regularly.