Doing Good Doesn’t Always Pay Off Taxwise

Americans are the most generous people on earth, giving $335.17 billion to charity in 2013 (the most recent year for statistics). Uncle Sam, however, doesn’t give you tax breaks for every good action. Here are some limitations on deducting your good deeds.

Donations if you claim the standard deduction

There is no above-the-line deduction for any charitable contribution that is viewed as tax deductible. Thus, if you make donations to legitimate charitable organizations and have all required substantiation backing up your gifts, you must itemize personal deductions in order to claim any write-off.

Phase-out of itemized deductions

If you are a high-income taxpayer, you can lose up to 80% of your itemized deductions due to a phase-out. Generally, you lose deductions equal to 3% of the excess of adjusted gross income (AGI) over a threshold amount for your filing status. For 2015, the phase-out begins with AGI of:

• $309,900 if you are married filing jointly or a qualifying widow/widower
• $284,050 if a head of household
• $258,250 if single
• $154,950 if married filing separately

Volunteering

No deduction is allowed for the value of your time and effort. Thus, if you help build homes for Habitat for Humanity or, as an accountant, maintain the finances for your church without any fee, you’re doing good but cannot claim a tax write-off.

Note: If you incur out-of-pocket expenses in the course of your volunteering for a charity, you can deduct these as a charitable contribution deduction. This includes driving your car at the rate of 14 cents per mile. Of course, you need good records to substantiate these out-of-pocket costs (including a written acknowledgment from the charity for expenses of $250 or more).

Free use of your property

Allowing a charity to use your property in the course of its activities is noble but not tax deductible. Thus, if you donate two weeks at your ski chalet or beach house to a charity’s auction to raise money, you cannot deduct the rental value of your property.

Similarly, if you loan money to a charity without charging interest, you cannot deduct the uncharged interest.

Bodily donations

You may have what others need. You cannot claim a charitable contribution deduction for:

• Blood donations to the Red Cross or other blood banks
• Donations of eggs to an infertile couple
• Organ donations. Donors can deduct their out-of-pocket costs (e.g., travel), but only as a medical expense subject to the applicable AGI floor (10%, or 7.5% for those age 65 and older); they cannot deduct their lost wages during recuperation.

Helping your neighbor

Donations directly to an individual, no matter how needy, are never deductible. Thus, if you neighbor needs a helping hand, your generosity (donations of clothing, food, or money) is not deductible.

Conclusion

Tax results shouldn’t control your actions, but recognize whether you are rewarded—from a tax perspective—for your good deeds. Then continue to do good!