NEW YORK (
) -- Several years ago a client included in the "stuff" she sent me at tax time a receipt for donating her car to a charity.
When I gave the finished return to her she asked me how much tax she saved by donating the car. My response: "Not a penny!"
She was confused.
"They told me I could deduct the value of the car on my tax return."
"Yes", I replied. "You are entitled to a tax deduction for donating a used car to a qualified charity. But only if you can itemize!"
This situation took place before Congress changed the rules for claiming a deduction for donating a vehicle to charity, so the taxpayer was entitled to a deduction for the "fair market value" of the auto, which is the Kelley's Blue Book "private party" value adjusted for condition and mileage. My client's car was worth about $2,000. Under current law the amount she could deduct would depend on what the charity did with the vehicle.
The taxpayer rented an apartment, so she had no real estate taxes or mortgage interest to deduct. Her cash contributions to church and charity were average. As a senior citizen she did not pay any state income tax, and at the time state and local sales tax was not deductible. Her medical expenses, including Medicare Part B, exceeded 7½ of her adjusted gross income, but not by much. Her total allowable itemized deductions for the year, including the $2,000 car donation, did not exceed the applicable standard deduction. So she received no tax benefit from donating her car to charity.
Now some more from the "yes it is deductible, but..." tax file:
Following the 'spirit' of the tax law
This past tax season a client told me he put a five dollar bill in the collection plate at church each Sunday, which totaled $260 for the year. However, I could not claim the deduction.
You can deduct contributions of cash to a qualified church or charity if you itemize on Schedule A. But you must have a record of the contribution in order to be allowed the deduction.
The record must be in the form of an actual cancelled check, or a copy of the front of the check and a corresponding debit entry on your monthly bank statement, an item on a bank or credit card statement identifying a credit or debit card charge, or a written receipt from the church or charity showing the name of the organization, the date of the contribution, and the amount of the contribution.
The law does not say that all contributions of $50 or more must be documented. It says that all
contributions must be documented.
When donating to your spiritual organization, following the spirit of the tax law isn't good enough if you want to avoid the IRS audit teams that tend to lean on the letter of the law. So you can no longer just put a five or ten dollar bill in the collection plate each week. You must write a check to the church for the $5 or $10 each week, or you must take advantage of the church's "envelope" system, which will provide you with a written receipt at the end of the year.
And I'm just getting started...
My tax fiefdom
Over the years, several clients have called me after receiving and reviewing their finished return to tell me, "You forgot to deduct your fee on my Schedule A".
Fees paid for preparing income tax returns are deductible as a miscellaneous expense on Schedule A. But the total of your allowable miscellaneous expenses must be reduced by 2% of your adjusted gross income. If 2% of AGI is more than your total allowable miscellaneous expenses you do not get a tax deduction.
What I do now to avoid this comment is list my tax preparation fee on the appropriate line on all Schedule As, along with any other miscellaneous expenses, and subtract the 2% of AGI to show that "0" is allowable.
The tax man isn't the only service provider in your life who isn't quite as deductible as you might think he is.
Medical expenses are only deductible to the extent that the total exceeds 7.5% of your AGI. If your total allowable medical expenses for the year are $5,000 and your AGI is $50,000 you can deduct only $1,250. If medical expenses were only $3,000 you would get no tax benefit from these expenses.
And casualty and theft losses are only deductible if the net amount, after any insurance reimbursement and a $100 IRS per incident "deductible," exceeds 10% of AGI.
There are a few items that are deductible whether or not you itemize -- like qualified tuition and fees and IRA contributions -- but even these are "phased out" or disallowed if your AGI, or a modified AGI, exceeds a certain amount.
So yes, it is deductible, but...all this goes to prove that the answer to just about any question concerning income taxes is "it depends." If someone tells you, or you read somewhere, that an item is tax deductible, check with your tax professional to evaluate whether it's tax deductible for you.
--By Robert Flach
Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro
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