Charity auctions are a popular way for individuals to support their favorite causes while also potentially receiving a tax benefit. However, not all charitable donations made through auctions are tax deductible.
Whether you are a frequent bidder at charity auctions or are considering making a donation for the first time, you can make the most of your charitable giving. Knowing the rules and regulations surrounding charity auctions can help you ensure that your donation qualifies for a tax deduction.
Are charity auctions tax deductible?
In the United States, donations made to qualified charitable organizations are tax deductible for the donor. This includes donations made through charity auctions, as long as the organization conducting the auction is a qualified charity and the donated item is used for the organization’s tax-exempt purposes.
The donor can typically claim a deduction for the fair market value of the item at the time of the donation as it compares to what they actually paid for the item. The fair market value is the price that a willing buyer would pay for the item in the open market. For example, if a person pays more than the item’s fair market value, they can receive a tax deduction on that item.
How much does a charitable donation reduce taxes?
The amount that a charitable donation reduces taxes will vary depending on the donor’s marginal tax bracket and the amount of the donation.
In general, however, individuals in the U.S. can deduct charitable donations on their federal income tax return up to 60% of their adjusted gross income (AGI) for cash donations and 30% of AGI for donations of appreciated property. It is always recommended to consult a tax professional for guidance.
What qualifies as a charity for tax deduction purposes?
In order for a donation to be tax deductible for the donor in the United States, the organization receiving the donation must be a qualified charitable organization. Organizations that qualify for tax-deductible donations typically have certain characteristics, including:
- Tax-exempt status —The organization must be recognized by the Internal Revenue Service (IRS) as a tax-exempt organization under section 501(c)(3) of the tax code. This means that the organization has been determined by the IRS to be organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes.
- Public charity status — The organization must be classified as a public charity, as opposed to a private foundation. Public charities are typically organizations that receive a significant portion of their funding from the general public or government, while private foundations are typically funded by a single individual or family.
- Not-for-profit status — The organization must not be organized or operated for the benefit of private individuals or shareholders. Similarly, the organization must not be engaged in lobbying or political activities.
It is important to note that the organization must be in good standing with the IRS and should not be under investigation or revocation of its tax-exempt status. It is also a good idea for donors to check the organization’s status with the IRS by using the Tax Exempt Organizations Search tool on the IRS website.
Talk to a ProVise CFP® professional about how charity auctions are tax deductible
In addition to asking whether charity auctions are tax deductible, do you need an answer to any other frequently asked questions? A financial advisor can help. At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a charitable giving plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to ask a professional about tax implications for charity auctions? Contact ProVise today to schedule a complimentary consultation.