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Not All Payments Are Created Equal

Paul and Steve each write checks for $500 to the same charity.  Paul’s check is an outright gift, while Steve’s check is for a ticket to the organization’s annual golf outing.  Do they both get the same deduction?  No.  Paul can claim a full $500 deduction on his income tax return, because he received nothing in return for his $500.  Steve’s deduction is generally limited to the difference between the $500 and the value of what he receives (e.g., greens fees, cart, meals).  The charity should provide Steve with the deductible amount in its invitation to the golf outing.

What if Steve sent the $500 check for the golf outing simply to support the charity but with no intention of attending the outing?  His deduction is still limited to the amount in excess of charity’s actual cost, unless he informs the charity when making his gift that he intends the entire amount to be a gift and that he won’t be participating in the golf event.

How about payments made to charity for a raffle?  The IRS takes the position that the amount paid for the raffle represents the full amount of the chance to win a prize and that, therefore, no portion of the payment is deductible.

Supporters who bid on items at a charity auction are considered to have paid fair market value for any item they win and are not entitled to a deduction, unless the donor can show that he or she paid more than the value of the item and that the extra amount was intended to be a gift to charity — a high hurdle.


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