IRS Announces 2010 Limits on Gifts

or Services Provided to Donors

By Allison Jones

Malin, Bergquist & Company, LLP

The total amount of charitable deductions claimed on individual tax returns has increased substantially over the past few years.  According to statistics released by the Internal Revenue Service (IRS), a total of $193.6 billion had been claimed as charitable contributions in 2007, up from $140.6 billion in 2002, a 38% increase in just six years.

It is important for non-profit organizations (NPOs) to keep up to date with the most recent federal laws regarding charitable contributions.  NPOs occasionally provide their donors with small gifts as a token of their appreciation.  Donors are permitted by federal law to claim charitable deductions only for donations that are outright gifts, with a few exceptions.

The IRS issues annual limitations on the deductibility of gifts or services provided by NPOs to their donors and has recently published the limits for the 2010 tax year. IRS regulations allow a charity to inform donors that their gifts are fully deductible in 2010 if: 

• The donor gave $48 or more and received a gift worth $9.60 or less.  The donor received gifts with a fair market value equal to no more than two percent of the amount of the donation, or $96, whichever was less.  The donor received appeals that contained small items – such as mailing labels – worth a total of no more than $9.60. 
• The donor actively refused the benefits offered (such as checking off a refusal box on a form sent by the charity).

For example, a non-profit organization receives a $100 donation from an individual.  If that individual receives a small gift (a travel mug, a calendar, etc.) from the NPO and the item received has a value of $9.60 or less, he or she is able to claim the entire $100 donation as a charitable contribution on his or her tax return. 

However, if an individual makes the same $100 donation but receives two tickets to an upcoming banquet worth $15 each, that individual can only claim the net of $70 as a charitable contribution on his or her tax return.  That is, the amount deductible is limited to the value of the contribution less the value of the goods or services received in return.

If a charity does provide a donor some benefit, the NPO must provide a statement detailing the deductible amount of the contribution.  When not readily available, the NPO must give a “good faith estimate” of the fair market value of the goods or services provided to the donor.

Organizations should also take these changes into consideration when planning their fund raising events.  NPOs often believe that giving big “thank you” gifts are necessary in order to establish a relationship with the donor.  However, if NPOs are able to effectively communicate the tax aspects of giving “thank you” gifts to donors, these donors may begin asking to not be sent the gifts, especially if they do not really want them.  Donation drives without any “thank you” gifts may still be effective in raising money without the added expense of these token gifts.

Allison Jones is a member of the Not-for-Profit/Tax Exempt Organizations Group of the public accounting firm of Malin Bergquist, of Erie and Pittsburgh, PA, and which serves 150 non-profit clients each year. Contact her at 814.454.4008 or at ajones@malinbergquist.com.