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140 ez 24. 140 ez   Contributions Table of Contents Introduction Useful Items - You may want to see: Organizations That Qualify To Receive Deductible ContributionsTypes of Qualified Organizations Contributions You Can DeductContributions From Which You Benefit Expenses Paid for Student Living With You Out-of-Pocket Expenses in Giving Services Contributions You Cannot DeductContributions to Individuals Contributions to Nonqualified Organizations Contributions From Which You Benefit Value of Time or Services Personal Expenses Appraisal Fees Contributions of PropertyException. 140 ez Household items. 140 ez Deduction more than $500. 140 ez Form 1098-C. 140 ez Filing deadline approaching and still no Form 1098-C. 140 ez Exception 1—vehicle used or improved by organization. 140 ez Exception 2—vehicle given or sold to needy individual. 140 ez Deduction $500 or less. 140 ez Right to use property. 140 ez Tangible personal property. 140 ez Future interest. 140 ez Determining Fair Market Value Giving Property That Has Decreased in Value Giving Property That Has Increased in Value When To DeductChecks. 140 ez Text message. 140 ez Credit card. 140 ez Pay-by-phone account. 140 ez Stock certificate. 140 ez Promissory note. 140 ez Option. 140 ez Borrowed funds. 140 ez Limits on DeductionsCarryovers Records To KeepCash Contributions Noncash Contributions Out-of-Pocket Expenses How To Report Introduction This chapter explains how to claim a deduction for your charitable contributions. 140 ez It discusses the following topics. 140 ez The types of organizations to which you can make deductible charitable contributions. 140 ez The types of contributions you can deduct. 140 ez How much you can deduct. 140 ez What records you must keep. 140 ez How to report your charitable contributions. 140 ez A charitable contribution is a donation or gift to, or for the use of, a qualified organization. 140 ez It is voluntary and is made without getting, or expecting to get, anything of equal value. 140 ez Form 1040 required. 140 ez    To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. 140 ez The amount of your deduction may be limited if certain rules and limits explained in this chapter apply to you. 140 ez The limits are explained in detail in Publication 526. 140 ez Useful Items - You may want to see: Publication 526 Charitable Contributions 561 Determining the Value of Donated Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 8283 Noncash Charitable Contributions Organizations That Qualify To Receive Deductible Contributions You can deduct your contributions only if you make them to a qualified organization. 140 ez Most organizations other than churches and governments must apply to the IRS to become a qualified organization. 140 ez How to check whether an organization can receive deductible charitable contributions. 140 ez   You can ask any organization whether it is a qualified organization, and most will be able to tell you. 140 ez Or go to IRS. 140 ez gov. 140 ez Click on “Tools” and then on “Exempt Organizations Select Check” (www. 140 ez irs. 140 ez gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check). 140 ez This online tool will enable you to search for qualified organizations. 140 ez You can also call the IRS to find out if an organization is qualified. 140 ez Call 1-877-829-5500. 140 ez People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. 140 ez Deaf or hard of hearing individuals can also contact the IRS through relay services such as the Federal Relay Service at www. 140 ez gsa. 140 ez gov/fedrelay. 140 ez Types of Qualified Organizations Generally, only the following types of organizations can be qualified organizations. 140 ez A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico). 140 ez It must, however, be organized and operated only for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. 140 ez Certain organizations that foster national or international amateur sports competition also qualify. 140 ez War veterans' organizations, including posts, auxiliaries, trusts, or foundations, organized in the United States or any of its possessions (including Puerto Rico). 140 ez Domestic fraternal societies, orders, and associations operating under the lodge system. 140 ez (Your contribution to this type of organization is deductible only if it is to be used solely for charitable, religious, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. 140 ez ) Certain nonprofit cemetery companies or corporations. 140 ez (Your contribution to this type of organization is not deductible if it can be used for the care of a specific lot or mausoleum crypt. 140 ez ) The United States or any state, the District of Columbia, a U. 140 ez S. 140 ez possession (including Puerto Rico), a political subdivision of a state or U. 140 ez S. 140 ez possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions. 140 ez (Your contribution to this type of organization is only deductible if it is to be used solely for public purposes. 140 ez ) Examples. 140 ez    The following list gives some examples of qualified organizations. 140 ez Churches, a convention or association of churches, temples, synagogues, mosques, and other religious organizations. 140 ez Most nonprofit charitable organizations such as the American Red Cross and the United Way. 140 ez Most nonprofit educational organizations, including the Boy Scouts of America, Girl Scouts of America, colleges, and museums. 140 ez This also includes nonprofit daycare centers that provide childcare to the general public if substantially all the childcare is provided to enable parents and guardians to be gainfully employed. 140 ez However, if your contribution is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution, as explained later under Contributions You Cannot Deduct . 140 ez Nonprofit hospitals and medical research organizations. 140 ez Utility company emergency energy programs, if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. 140 ez Nonprofit volunteer fire companies. 140 ez Nonprofit organizations that develop and maintain public parks and recreation facilities. 140 ez Civil defense organizations. 140 ez Certain foreign charitable organizations. 140 ez   Under income tax treaties with Canada, Israel, and Mexico, you may be able to deduct contributions to certain Canadian, Israeli, or Mexican charitable organizations. 140 ez Generally, you must have income from sources in that country. 140 ez For additional information on the deduction of contributions to Canadian charities, see Publication 597, Information on the United States–Canada Income Tax Treaty. 140 ez If you need more information on how to figure your contribution to Mexican and Israeli charities, see Publication 526. 140 ez Contributions You Can Deduct Generally, you can deduct contributions of money or property you make to, or for the use of, a qualified organization. 140 ez A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. 140 ez The contributions must be made to a qualified organization and not set aside for use by a specific person. 140 ez If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. 140 ez See Contributions of Property , later in this chapter. 140 ez Your deduction for charitable contributions generally cannot be more than 50% of your adjusted gross income (AGI), but in some cases 20% and 30% limits may apply. 140 ez See Limits on Deductions , later. 140 ez In addition, the total of your charitable contribution deduction and certain other itemized deductions may be limited. 140 ez See chapter 29. 140 ez Table 24-1 gives examples of contributions you can and cannot deduct. 140 ez Contributions From Which You Benefit If you receive a benefit as a result of making a contribution to a qualified organization, you can deduct only the amount of your contribution that is more than the value of the benefit you receive. 140 ez Also see Contributions From Which You Benefit under Contributions You Cannot Deduct, later. 140 ez If you pay more than fair market value to a qualified organization for goods or services, the excess may be a charitable contribution. 140 ez For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. 140 ez Example 1. 140 ez You pay $65 for a ticket to a dinner-dance at a church. 140 ez Your entire $65 payment goes to the church. 140 ez The ticket to the dinner-dance has a fair market value of $25. 140 ez When you buy your ticket, you know that its value is less than your payment. 140 ez To figure the amount of your charitable contribution, subtract the value of the benefit you receive ($25) from your total payment ($65). 140 ez You can deduct $40 as a contribution to the church. 140 ez Example 2. 140 ez At a fundraising auction conducted by a charity, you pay $600 for a week's stay at a beach house. 140 ez The amount you pay is no more than the fair rental value. 140 ez You have not made a deductible charitable contribution. 140 ez Athletic events. 140 ez   If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. 140 ez   If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. 140 ez Subtract the price of the tickets from your payment. 140 ez You can deduct 80% of the remaining amount as a charitable contribution. 140 ez Example 1. 140 ez You pay $300 a year for membership in a university's athletic scholarship program. 140 ez The only benefit of membership is that you have the right to buy one season ticket for a seat in a designated area of the stadium at the university's home football games. 140 ez You can deduct $240 (80% of $300) as a charitable contribution. 140 ez Table 24-1. 140 ez Examples of Charitable Contributions—A Quick Check Use the following lists for a quick check of whether you can deduct a contribution. 140 ez See the rest of this chapter for more information and additional rules and limits that may apply. 140 ez Deductible As  Charitable Contributions Not Deductible  As Charitable Contributions Money or property you give to:  Churches, synagogues, temples, mosques, and other religious organizations Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park) Nonprofit schools and hospitals The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc. 140 ez War veterans groups   Expenses paid for a student living with you, sponsored by a qualified organization  Out-of-pocket expenses when you serve a qualified organization as a volunteer Money or property you give to:  Civic leagues, social and sports clubs, labor unions, and chambers of commerce Foreign organizations (except certain Canadian, Israeli, and Mexican charities) Groups that are run for personal profit Groups whose purpose is to lobby for law changes Homeowners' associations Individuals Political groups or candidates for public office   Cost of raffle, bingo, or lottery tickets  Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups  Tuition  Value of your time or services  Value of blood given to a blood bank    Example 2. 140 ez The facts are the same as in Example 1 except your $300 payment includes the purchase of one season ticket for the stated ticket price of $120. 140 ez You must subtract the usual price of a ticket ($120) from your $300 payment. 140 ez The result is $180. 140 ez Your deductible charitable contribution is $144 (80% of $180). 140 ez Charity benefit events. 140 ez   If you pay a qualified organization more than fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, you can deduct only the amount that is more than the value of the privileges or other benefits you receive. 140 ez   If there is an established charge for the event, that charge is the value of your benefit. 140 ez If there is no established charge, the reasonable value of the right to attend the event is the value of your benefit. 140 ez Whether you use the tickets or other privileges has no effect on the amount you can deduct. 140 ez However, if you return the ticket to the qualified organization for resale, you can deduct the entire amount you paid for the ticket. 140 ez    Even if the ticket or other evidence of payment indicates that the payment is a “contribution,” this does not mean you can deduct the entire amount. 140 ez If the ticket shows the price of admission and the amount of the contribution, you can deduct the contribution amount. 140 ez Example. 140 ez You pay $40 to see a special showing of a movie for the benefit of a qualified organization. 140 ez Printed on the ticket is “Contribution—$40. 140 ez ” If the regular price for the movie is $8, your contribution is $32 ($40 payment − $8 regular price). 140 ez Membership fees or dues. 140 ez    You may be able to deduct membership fees or dues you pay to a qualified organization. 140 ez However, you can deduct only the amount that is more than the value of the benefits you receive. 140 ez    You cannot deduct dues, fees, or assessments paid to country clubs and other social organizations. 140 ez They are not qualified organizations. 140 ez Certain membership benefits can be disregarded. 140 ez   Both you and the organization can disregard the following membership benefits if you receive them in return for an annual payment of $75 or less. 140 ez Any rights or privileges, other than those discussed under Athletic events , earlier, that you can use frequently while you are a member, such as: Free or discounted admission to the organization's facilities or events, Free or discounted parking, Preferred access to goods or services, and Discounts on the purchase of goods and services. 140 ez Admission, while you are a member, to events open only to members of the organization, if the organization reasonably projects that the cost per person (excluding any allocated overhead) is not more than $10. 140 ez 20. 140 ez Token items. 140 ez   You do not have to reduce your contribution by the value of any benefit you receive if both of the following are true. 140 ez You receive only a small item or other benefit of token value. 140 ez The qualified organization correctly determines that the value of the item or benefit you received is not substantial and informs you that you can deduct your payment in full. 140 ez Written statement. 140 ez   A qualified organization must give you a written statement if you make a payment of more than $75 that is partly a contribution and partly for goods or services. 140 ez The statement must say that you can deduct only the amount of your payment that is more than the value of the goods or services you received. 140 ez It must also give you a good faith estimate of the value of those goods or services. 140 ez   The organization can give you the statement either when it solicits or when it receives the payment from you. 140 ez Exception. 140 ez   An organization will not have to give you this statement if one of the following is true. 140 ez The organization is: A governmental organization described in (5) under Types of Qualified Organizations , earlier, or An organization formed only for religious purposes, and the only benefit you receive is an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in commercial transactions outside the donative context. 140 ez You receive only items whose value is not substantial as described under Token items , earlier. 140 ez You receive only membership benefits that can be disregarded, as described earlier. 140 ez Expenses Paid for Student Living With You You may be able to deduct some expenses of having a student live with you. 140 ez You can deduct qualifying expenses for a foreign or American student who: Lives in your home under a written agreement between you and a qualified organization as part of a program of the organization to provide educational opportunities for the student, Is not your relative or dependent, and Is a full-time student in the twelfth or any lower grade at a school in the United States. 140 ez You can deduct up to $50 a month for each full calendar month the student lives with you. 140 ez Any month when conditions (1) through (3) are met for 15 days or more counts as a full month. 140 ez For additional information, see Expenses Paid for Student Living With You in Publication 526. 140 ez Mutual exchange program. 140 ez   You cannot deduct the costs of a foreign student living in your home under a mutual exchange program through which your child will live with a family in a foreign country. 140 ez Table 24-2. 140 ez Volunteers' Questions and Answers If you volunteer for a qualified organization, the following questions and answers may apply to you. 140 ez All of the rules explained in this chapter also apply. 140 ez See, in particular, Out-of-Pocket Expenses in Giving Services . 140 ez Question Answer I volunteer 6 hours a week in the office of a qualified organization. 140 ez The receptionist is paid $10 an hour for the same work. 140 ez Can I deduct $60 a week for my time?    No, you cannot deduct the value of your time or services. 140 ez The office is 30 miles from my home. 140 ez Can I deduct any of my car expenses for these trips? Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. 140 ez If you don't want to figure your actual costs, you can deduct 14 cents for each mile. 140 ez I volunteer as a Red Cross nurse's aide at a hospital. 140 ez Can I deduct the cost of the uniforms I must wear? Yes, you can deduct the cost of buying and cleaning your uniforms if the hospital is a qualified organization, the uniforms are not suitable for everyday use, and you must wear them when volunteering. 140 ez I pay a babysitter to watch my children while I volunteer for a qualified organization. 140 ez Can I deduct these costs? No, you cannot deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. 140 ez (If you have childcare expenses so you can work for pay, see chapter 32. 140 ez ) Out-of-Pocket Expenses in Giving Services Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. 140 ez The amounts must be: Unreimbursed, Directly connected with the services, Expenses you had only because of the services you gave, and Not personal, living, or family expenses. 140 ez Table 24-2 contains questions and answers that apply to some individuals who volunteer their services. 140 ez Conventions. 140 ez   If a qualified organization selects you to attend a convention as its representative, you can deduct unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight in connection with the convention. 140 ez However, see Travel , later. 140 ez   You cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. 140 ez You also cannot deduct transportation, meals and lodging, and other expenses for your spouse or children. 140 ez    You cannot deduct your travel expenses in attending a church convention if you go only as a member of your church rather than as a chosen representative. 140 ez You can, however, deduct unreimbursed expenses that are directly connected with giving services for your church during the convention. 140 ez Uniforms. 140 ez   You can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization. 140 ez Foster parents. 140 ez   You may be able to deduct as a charitable contribution some of the costs of being a foster parent (foster care provider) if you have no profit motive in providing the foster care and are not, in fact, making a profit. 140 ez A qualified organization must select the individuals you take into your home for foster care. 140 ez    You can deduct expenses that meet both of the following requirements. 140 ez They are unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child. 140 ez They are incurred primarily to benefit the qualified organization. 140 ez   Unreimbursed expenses that you cannot deduct as charitable contributions may be considered support provided by you in determining whether you can claim the foster child as a dependent. 140 ez For details, see chapter 3. 140 ez Example. 140 ez You cared for a foster child because you wanted to adopt her, not to benefit the agency that placed her in your home. 140 ez Your unreimbursed expenses are not deductible as charitable contributions. 140 ez Car expenses. 140 ez   You can deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, that are directly related to the use of your car in giving services to a charitable organization. 140 ez You cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. 140 ez    If you do not want to deduct your actual expenses, you can use a standard mileage rate of 14 cents a mile to figure your contribution. 140 ez   You can deduct parking fees and tolls whether you use your actual expenses or the standard mileage rate. 140 ez   You must keep reliable written records of your car expenses. 140 ez For more information, see Car expenses under Records To Keep, later. 140 ez Travel. 140 ez   Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. 140 ez This applies whether you pay the expenses directly or indirectly. 140 ez You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. 140 ez   The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. 140 ez Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. 140 ez However, if you have only nominal duties, or if for significant parts of the trip you do not have any duties, you cannot deduct your travel expenses. 140 ez Example 1. 140 ez You are a troop leader for a tax-exempt youth group and you take the group on a camping trip. 140 ez You are responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. 140 ez You participate in the activities of the group and enjoy your time with them. 140 ez You oversee the breaking of camp and you transport the group home. 140 ez You can deduct your travel expenses. 140 ez Example 2. 140 ez You sail from one island to another and spend 8 hours a day counting whales and other forms of marine life. 140 ez The project is sponsored by a charitable organization. 140 ez In most circumstances, you cannot deduct your expenses. 140 ez Example 3. 140 ez You work for several hours each morning on an archaeological dig sponsored by a charitable organization. 140 ez The rest of the day is free for recreation and sightseeing. 140 ez You cannot take a charitable contribution deduction even though you work very hard during those few hours. 140 ez Example 4. 140 ez You spend the entire day attending a charitable organization's regional meeting as a chosen representative. 140 ez In the evening you go to the theater. 140 ez You can claim your travel expenses as charitable contributions, but you cannot claim the cost of your evening at the theater. 140 ez Daily allowance (per diem). 140 ez   If you provide services for a charitable organization and receive a daily allowance to cover reasonable travel expenses, including meals and lodging while away from home overnight, you must include in income any part of the allowance that is more than your deductible travel expenses. 140 ez You may be able to deduct any necessary travel expenses that are more than the allowance. 140 ez Deductible travel expenses. 140 ez   These include: Air, rail, and bus transportation, Out-of-pocket expenses for your car, Taxi fares or other costs of transportation between the airport or station and your hotel, Lodging costs, and The cost of meals. 140 ez Because these travel expenses are not business-related, they are not subject to the same limits as business-related expenses. 140 ez For information on business travel expenses, see Travel Expenses in chapter 26. 140 ez Contributions You Cannot Deduct There are some contributions you cannot deduct, such as those made to specific individuals and those made to nonqualified organizations. 140 ez (See Contributions to Individuals and Contributions to Nonqualified Organizations , next. 140 ez ) There are others you can deduct only part of, as discussed later under Contributions From Which You Benefit . 140 ez Contributions to Individuals You cannot deduct contributions to specific individuals, including the following. 140 ez Contributions to fraternal societies made for the purpose of paying medical or burial expenses of deceased members. 140 ez Contributions to individuals who are needy or worthy. 140 ez You cannot deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. 140 ez But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you do not indicate that your contribution is for a specific person. 140 ez Example. 140 ez You can deduct contributions to a qualified organization for flood relief, hurricane relief, or other disaster relief. 140 ez However, you cannot deduct contributions earmarked for relief of a particular individual or family. 140 ez Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. 140 ez Expenses you paid for another person who provided services to a qualified organization. 140 ez Example. 140 ez Your son does missionary work. 140 ez You pay his expenses. 140 ez You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. 140 ez Payments to a hospital that are for a specific patient's care or for services for a specific patient. 140 ez You cannot deduct these payments even if the hospital is operated by a city, a state, or other qualified organization. 140 ez Contributions to Nonqualified Organizations You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following. 140 ez Certain state bar associations if: The bar is not a political subdivision of a state, The bar has private, as well as public, purposes, such as promoting the professional interests of members, and Your contribution is unrestricted and can be used for private purposes. 140 ez Chambers of commerce and other business leagues or organizations (but see chapter 28). 140 ez Civic leagues and associations. 140 ez Communist organizations. 140 ez Country clubs and other social clubs. 140 ez Most foreign organizations (other than certain Canadian, Israeli, or Mexican charitable organizations). 140 ez For details, see Publication 526. 140 ez Homeowners' associations. 140 ez Labor unions (but see chapter 28). 140 ez Political organizations and candidates. 140 ez Contributions From Which You Benefit If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive. 140 ez See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. 140 ez These contributions include the following. 140 ez Contributions for lobbying. 140 ez This includes amounts that you earmark for use in, or in connection with, influencing specific legislation. 140 ez Contributions to a retirement home for room, board, maintenance, or admittance. 140 ez Also, if the amount of your contribution depends on the type or size of apartment you will occupy, it is not a charitable contribution. 140 ez Costs of raffles, bingo, lottery, etc. 140 ez You cannot deduct as a charitable contribution amounts you pay to buy raffle or lottery tickets or to play bingo or other games of chance. 140 ez For information on how to report gambling winnings and losses, see Gambling winnings in chapter 12 and Gambling Losses Up to the Amount of Gambling Winnings in chapter 28. 140 ez Dues to fraternal orders and similar groups. 140 ez However, see Membership fees or dues , earlier, under Contributions You Can Deduct. 140 ez Tuition, or amounts you pay instead of tuition. 140 ez You cannot deduct as a charitable contribution amounts you pay as tuition even if you pay them for children to attend parochial schools or qualifying nonprofit daycare centers. 140 ez You also cannot deduct any fixed amount you must pay in addition to, or instead of, tuition to enroll in a private school, even if it is designated as a “donation. 140 ez ” Value of Time or Services You cannot deduct the value of your time or services, including: Blood donations to the American Red Cross or to blood banks, and The value of income lost while you work as an unpaid volunteer for a qualified organization. 140 ez Personal Expenses You cannot deduct personal, living, or family expenses, such as the following items. 140 ez The cost of meals you eat while you perform services for a qualified organization unless it is necessary for you to be away from home overnight while performing the services. 140 ez Adoption expenses, including fees paid to an adoption agency and the costs of keeping a child in your home before adoption is final (but see Adoption Credit in chapter 37, and the instructions for Form 8839, Qualified Adoption Expenses). 140 ez You also may be able to claim an exemption for the child. 140 ez See Adopted child in chapter 3. 140 ez Appraisal Fees You cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property (but see chapter 28). 140 ez Contributions of Property If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. 140 ez However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction. 140 ez See Giving Property That Has Increased in Value , later. 140 ez For information about the records you must keep and the information you must furnish with your return if you donate property, see Records To Keep and How To Report , later. 140 ez Clothing and household items. 140 ez   You cannot take a deduction for clothing or household items you donate unless the clothing or household items are in good used condition or better. 140 ez Exception. 140 ez   You can take a deduction for a contribution of an item of clothing or household item that is not in good used condition or better if you deduct more than $500 for it and include a qualified appraisal of it with your return. 140 ez Household items. 140 ez   Household items include: Furniture and furnishings, Electronics, Appliances, Linens, and Other similar items. 140 ez   Household items do not include: Food, Paintings, antiques, and other objects of art, Jewelry and gems, and Collections. 140 ez Cars, boats, and airplanes. 140 ez    The following rules apply to any donation of a qualified vehicle. 140 ez A qualified vehicle is: A car or any motor vehicle manufactured mainly for use on public streets, roads, and highways, A boat, or An airplane. 140 ez Deduction more than $500. 140 ez   If you donate a qualified vehicle with a claimed fair market value of more than $500, you can deduct the smaller of: The gross proceeds from the sale of the vehicle by the organization, or The vehicle's fair market value on the date of the contribution. 140 ez If the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to figure the deductible amount, as described under Giving Property That Has Increased in Value , later. 140 ez Form 1098-C. 140 ez   You must attach to your return Copy B of the Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, (or other statement containing the same information as Form 1098-C) you received from the organization. 140 ez The Form 1098-C (or other statement) will show the gross proceeds from the sale of the vehicle. 140 ez   If you e-file your return, you must: Attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS, or Include Copy B of Form 1098-C as a pdf attachment if your software program allows it. 140 ez   If you do not attach Form 1098-C (or other statement), you cannot deduct your contribution. 140 ez    You must get Form 1098-C (or other statement) within 30 days of the sale of the vehicle. 140 ez But if exception 1 or 2 (described later) applies, you must get Form 1098-C (or other statement) within 30 days of your donation. 140 ez Filing deadline approaching and still no Form 1098-C. 140 ez   If the filing deadline is approaching and you still do not have a Form 1098-C, you have two choices. 140 ez Request an automatic 6-month extension of time to file your return. 140 ez You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. 140 ez S. 140 ez Individual Income Tax Return. 140 ez  For more information, see Automatic Extension in chapter 1. 140 ez File the return on time without claiming the deduction for the qualified vehicle. 140 ez After receiving the Form 1098-C, file an amended return, Form 1040X, claiming the deduction. 140 ez Attach Copy B of Form 1098-C (or other statement) to the amended return. 140 ez For more information about amended returns, see Amended Returns and Claims for Refund in chapter 1. 140 ez Exceptions. 140 ez   There are two exceptions to the rules just described for deductions of more than $500. 140 ez Exception 1—vehicle used or improved by organization. 140 ez   If the qualified organization makes a significant intervening use of or material improvement to the vehicle before transferring it, you generally can deduct the vehicle's fair market value at the time of the contribution. 140 ez But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. 140 ez The Form 1098-C (or other statement) will show whether this exception applies. 140 ez Exception 2—vehicle given or sold to needy individual. 140 ez   If the qualified organization will give the vehicle, or sell it for a price well below fair market value, to a needy individual to further the organization's charitable purpose, you generally can deduct the vehicle's fair market value at the time of the contribution. 140 ez But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. 140 ez The Form 1098-C (or other statement) will show whether this exception applies. 140 ez   This exception does not apply if the organization sells the vehicle at auction. 140 ez In that case, you cannot deduct the vehicle's fair market value. 140 ez Example. 140 ez Anita donates a used car to a qualified organization. 140 ez She bought it 3 years ago for $9,000. 140 ez A used car guide shows the fair market value for this type of car is $6,000. 140 ez However, Anita gets a Form 1098-C from the organization showing the car was sold for $2,900. 140 ez Neither exception 1 nor exception 2 applies. 140 ez If Anita itemizes her deductions, she can deduct $2,900 for her donation. 140 ez She must attach Form 1098-C and Form 8283 to her return. 140 ez Deduction $500 or less. 140 ez   If the qualified organization sells the vehicle for $500 or less and exceptions 1 and 2 do not apply, you can deduct the smaller of: $500, or The vehicle's fair market value on the date of the contribution. 140 ez But if the vehicle's fair market value was more than your cost or other basis, you may have to reduce the fair market value to get the deductible amount, as described under Giving Property That Has Increased in Value , later. 140 ez   If the vehicle's fair market value is at least $250 but not more than $500, you must have a written statement from the qualified organization acknowledging your donation. 140 ez The statement must contain the information and meet the tests for an acknowledgment described under Deductions of At Least $250 But Not More Than $500 under Records To Keep, later. 140 ez Partial interest in property. 140 ez   Generally, you cannot deduct a charitable contribution of less than your entire interest in property. 140 ez Right to use property. 140 ez   A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible. 140 ez For exceptions and more information, see Partial Interest in Property Not in Trust in Publication 561. 140 ez Future interests in tangible personal property. 140 ez   You cannot deduct the value of a charitable contribution of a future interest in tangible personal property until all intervening interests in and rights to the actual possession or enjoyment of the property have either expired or been turned over to someone other than yourself, a related person, or a related organization. 140 ez Tangible personal property. 140 ez   This is any property, other than land or buildings, that can be seen or touched. 140 ez It includes furniture, books, jewelry, paintings, and cars. 140 ez Future interest. 140 ez   This is any interest that is to begin at some future time, regardless of whether it is designated as a future interest under state law. 140 ez Determining Fair Market Value This section discusses general guidelines for determining the fair market value of various types of donated property. 140 ez Publication 561 contains a more complete discussion. 140 ez Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. 140 ez Used clothing and household items. 140 ez   The fair market value of used clothing and household goods is usually far less than what you paid for them when they were new. 140 ez   For used clothing, you should claim as the value the price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops. 140 ez See Household Goods in Publication 561 for information on the valuation of household goods, such as furniture, appliances, and linens. 140 ez Example. 140 ez Dawn Greene donated a coat to a thrift store operated by her church. 140 ez She paid $300 for the coat 3 years ago. 140 ez Similar coats in the thrift store sell for $50. 140 ez The fair market value of the coat is $50. 140 ez Dawn's donation is limited to $50. 140 ez Cars, boats, and airplanes. 140 ez   If you contribute a car, boat, or airplane to a charitable organization, you must determine its fair market value. 140 ez Certain commercial firms and trade organizations publish used car pricing guides, commonly called “blue books,” containing complete dealer sale prices or dealer average prices for recent model years. 140 ez The guides may be published monthly or seasonally and for different regions of the country. 140 ez These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. 140 ez The prices are not “official” and these publications are not considered an appraisal of any specific donated property. 140 ez But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. 140 ez   You can also find used car pricing information on the Internet. 140 ez Example. 140 ez You donate a used car in poor condition to a local high school for use by students studying car repair. 140 ez A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. 140 ez However, the guide shows the price for a private party sale of the car is only $750. 140 ez The fair market value of the car is considered to be $750. 140 ez Large quantities. 140 ez   If you contribute a large number of the same item, fair market value is the price at which comparable numbers of the item are being sold. 140 ez Giving Property That Has Decreased in Value If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. 140 ez You cannot claim a deduction for the difference between the property's basis and its fair market value. 140 ez Giving Property That Has Increased in Value If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. 140 ez Your basis in property is generally what you paid for it. 140 ez See chapter 13 if you need more information about basis. 140 ez Different rules apply to figuring your deduction, depending on whether the property is: Ordinary income property, or Capital gain property. 140 ez Ordinary income property. 140 ez   Property is ordinary income property if you would have recognized ordinary income or short-term capital gain had you sold it at fair market value on the date it was contributed. 140 ez Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets (defined in chapter 14) held 1 year or less. 140 ez Amount of deduction. 140 ez   The amount you can deduct for a contribution of ordinary income property is its fair market value minus the amount that would be ordinary income or short-term capital gain if you sold the property for its fair market value. 140 ez Generally, this rule limits the deduction to your basis in the property. 140 ez Example. 140 ez You donate stock you held for 5 months to your church. 140 ez The fair market value of the stock on the day you donate it is $1,000, but you paid only $800 (your basis). 140 ez Because the $200 of appreciation would be short-term capital gain if you sold the stock, your deduction is limited to $800 (fair market value minus the appreciation). 140 ez Capital gain property. 140 ez   Property is capital gain property if you would have recognized long-term capital gain had you sold it at fair market value on the date of the contribution. 140 ez It includes capital assets held more than 1 year, as well as certain real property and depreciable property used in your trade or business and, generally, held more than 1 year. 140 ez Amount of deduction — general rule. 140 ez   When figuring your deduction for a contribution of capital gain property, you generally can use the fair market value of the property. 140 ez Exceptions. 140 ez   In certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. 140 ez Generally, this means reducing the fair market value to the property's cost or other basis. 140 ez Bargain sales. 140 ez   A bargain sale of property is a sale or exchange for less than the property's fair market value. 140 ez A bargain sale to a qualified organization is partly a charitable contribution and partly a sale or exchange. 140 ez A bargain sale may result in a taxable gain. 140 ez More information. 140 ez   For more information on donating appreciated property, see Giving Property That Has Increased in Value in Publication 526. 140 ez When To Deduct You can deduct your contributions only in the year you actually make them in cash or other property (or in a later carryover year, as explained later under Carryovers ). 140 ez This applies whether you use the cash or an accrual method of accounting. 140 ez Time of making contribution. 140 ez   Usually, you make a contribution at the time of its unconditional delivery. 140 ez Checks. 140 ez   A check you mail to a charity is considered delivered on the date you mail it. 140 ez Text message. 140 ez   Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. 140 ez Credit card. 140 ez    Contributions charged on your credit card are deductible in the year you make the charge. 140 ez Pay-by-phone account. 140 ez    Contributions made through a pay-by-phone account are considered delivered on the date the financial institution pays the amount. 140 ez Stock certificate. 140 ez   A properly endorsed stock certificate is considered delivered on the date of mailing or other delivery to the charity or to the charity's agent. 140 ez However, if you give a stock certificate to your agent or to the issuing corporation for transfer to the name of the charity, your contribution is not delivered until the date the stock is transferred on the books of the corporation. 140 ez Promissory note. 140 ez   If you issue and deliver a promissory note to a charity as a contribution, it is not a contribution until you make the note payments. 140 ez Option. 140 ez    If you grant a charity an option to buy real property at a bargain price, it is not a contribution until the organization exercises the option. 140 ez Borrowed funds. 140 ez   If you contribute borrowed funds, you can deduct the contribution in the year you deliver the funds to the charity, regardless of when you repay the loan. 140 ez Limits on Deductions The amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI). 140 ez Your deduction may be further limited to 30% or 20% of your AGI, depending on the type of property you give and the type of organization you give it to. 140 ez If your total contributions for the year are 20% or less of your AGI, these limits do not apply to you. 140 ez The limits are discussed in detail under Limits on Deductions in Publication 526. 140 ez A higher limit applies to certain qualified conservation contributions. 140 ez See Publication 526 for details. 140 ez Carryovers You can carry over any contributions you cannot deduct in the current year because they exceed your adjusted-gross-income limits. 140 ez You can deduct the excess in each of the next 5 years until it is used up, but not beyond that time. 140 ez For more information, see Carryovers in Publication 526. 140 ez Records To Keep You must keep records to prove the amount of the contributions you make during the year. 140 ez The kind of records you must keep depends on the amount of your contributions and whether they are: Cash contributions, Noncash contributions, or Out-of-pocket expenses when donating your services. 140 ez Note. 140 ez An organization generally must give you a written statement if it receives a payment from you that is more than $75 and is partly a contribution and partly for goods or services. 140 ez (See Contributions From Which You Benefit under Contributions You Can Deduct, earlier. 140 ez ) Keep the statement for your records. 140 ez It may satisfy all or part of the recordkeeping requirements explained in the following discussions. 140 ez Cash Contributions Cash contributions include those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. 140 ez You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following. 140 ez A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. 140 ez Bank records may include: A canceled check, A bank or credit union statement, or A credit card statement. 140 ez A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution. 140 ez The payroll deduction records described next. 140 ez Payroll deductions. 140 ez   If you make a contribution by payroll deduction, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization. 140 ez If your employer withheld $250 or more from a single paycheck, see Contributions of $250 or More , next. 140 ez Contributions of $250 or More You can claim a deduction for a contribution of $250 or more only if you have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records. 140 ez If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and the date of each contribution and shows your total contributions. 140 ez Amount of contribution. 140 ez   In figuring whether your contribution is $250 or more, do not combine separate contributions. 140 ez For example, if you gave your church $25 each week, your weekly payments do not have to be combined. 140 ez Each payment is a separate contribution. 140 ez   If contributions are made by payroll deduction, the deduction from each paycheck is treated as a separate contribution. 140 ez   If you made a payment that is partly for goods and services, as described earlier under Contributions From Which You Benefit , your contribution is the amount of the payment that is more than the value of the goods and services. 140 ez Acknowledgment. 140 ez   The acknowledgment must meet these tests. 140 ez It must be written. 140 ez It must include: The amount of cash you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), A description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and A statement that the only benefit you received was an intangible religious benefit, if that was the case. 140 ez The acknowledgment does not need to describe or estimate the value of an intangible religious benefit. 140 ez An intangible religious benefit is a benefit that generally is not sold in commercial transactions outside a donative (gift) context. 140 ez An example is admission to a religious ceremony. 140 ez You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. 140 ez   If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. 140 ez If the acknowledgment shows the date of the contribution and meets the other tests just described, you do not need any other records. 140 ez Payroll deductions. 140 ez   If you make a contribution by payroll deduction and your employer withholds $250 or more from a single paycheck, you must keep: A pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld as a contribution, and A pledge card or other document prepared by or for the qualified organization that shows the name of the organization and states the organization does not provide goods or services in return for any contribution made to it by payroll deduction. 140 ez A single pledge card may be kept for all contributions made by payroll deduction regardless of amount as long as it contains all the required information. 140 ez   If the pay stub, Form W-2, pledge card, or other document does not show the date of the contribution, you must have another document that does show the date of the contribution. 140 ez If the pay stub, Form W-2, pledge card, or other document shows the date of the contribution, you do not need any other records except those just described in (1) and (2). 140 ez Noncash Contributions For a contribution not made in cash, the records you must keep depend on whether your deduction for the contribution is: Less than $250, At least $250 but not more than $500, Over $500 but not more than $5,000, or Over $5,000. 140 ez Amount of deduction. 140 ez   In figuring whether your deduction is $500 or more, combine your claimed deductions for all similar items of property donated to any charitable organization during the year. 140 ez   If you received goods or services in return, as described earlier in Contributions From Which You Benefit , reduce your contribution by the value of those goods or services. 140 ez If you figure your deduction by reducing the fair market value of the donated property by its appreciation, as described earlier in Giving Property That Has Increased in Value , your contribution is the reduced amount. 140 ez Deductions of Less Than $250 If you make any noncash contribution, you must get and keep a receipt from the charitable organization showing: The name of the charitable organization, The date and location of the charitable contribution, and A reasonably detailed description of the property. 140 ez A letter or other written communication from the charitable organization acknowledging receipt of the contribution and containing the information in (1), (2), and (3) will serve as a receipt. 140 ez You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity's unattended drop site). 140 ez Additional records. 140 ez   You must also keep reliable written records for each item of contributed property. 140 ez Your written records must include the following information. 140 ez The name and address of the organization to which you contributed. 140 ez The date and location of the contribution. 140 ez A description of the property in detail reasonable under the circumstances. 140 ez For a security, keep the name of the issuer, the type of security, and whether it is regularly traded on a stock exchange or in an over-the-counter market. 140 ez The fair market value of the property at the time of the contribution and how you figured the fair market value. 140 ez If it was determined by appraisal, keep a signed copy of the appraisal. 140 ez The cost or other basis of the property, if you must reduce its fair market value by appreciation. 140 ez Your records should also include the amount of the reduction and how you figured it. 140 ez The amount you claim as a deduction for the tax year as a result of the contribution, if you contribute less than your entire interest in the property during the tax year. 140 ez Your records must include the amount you claimed as a deduction in any earlier years for contributions of other interests in this property. 140 ez They must also include the name and address of each organization to which you contributed the other interests, the place where any such tangible property is located or kept, and the name of any person in possession of the property, other than the organization to which you contributed it. 140 ez The terms of any conditions attached to the contribution of property. 140 ez Deductions of At Least $250 But Not More Than $500 If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you must get and keep an acknowledgment of your contribution from the qualified organization. 140 ez If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that shows your total contributions. 140 ez The acknowledgment must contain the information in items (1) through (3) under Deductions of Less Than $250 , earlier, and your written records must include the information listed in that discussion under Additional records . 140 ez The acknowledgment must also meet these tests. 140 ez It must be written. 140 ez It must include: A description (but not necessarily the value) of any property you contributed, Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), and A description and good faith estimate of the value of any goods or services described in (b). 140 ez If the only benefit you received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so and does not need to describe or estimate the value of the benefit. 140 ez You must get it on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. 140 ez Deductions Over $500 You are required to give additional information if you claim a deduction over $500 for noncash charitable contributions. 140 ez See Records To Keep in Publication 526 for more information. 140 ez Out-of-Pocket Expenses If you give services to a qualified organization and have unreimbursed out-of-pocket expenses related to those services, the following two rules apply. 140 ez You must have adequate records to prove the amount of the expenses. 140 ez If any of your unreimbursed out-of-pocket expenses, considered separately, are $250 or more (for example, you pay $250 or more for an airline ticket to attend a convention of a qualified organization as a chosen representative), you must get an acknowledgment from the qualified organization that contains: A description of the services you provided, A statement of whether or not the organization provided you any goods or services to reimburse you for the expenses you incurred, A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to reimburse you, and A statement that the only benefit you received was an intangible religious benefit, if that was the case. 140 ez The acknowledgment does not need to describe or estimate the value of an intangible religious benefit (defined earlier under Acknowledgment ). 140 ez You must get the acknowledgment on or before the earlier of: The date you file your return for the year you make the contribution, or The due date, including extensions, for filing the return. 140 ez Car expenses. 140 ez   If you claim expenses directly related to use of your car in giving services to a qualified organization, you must keep reliable written records of your expenses. 140 ez Whether your records are considered reliable depends on all the facts and circumstances. 140 ez Generally, they may be considered reliable if you made them regularly and at or near the time you had the expenses. 140 ez   For example, your records might show the name of the organization you were serving and the dates you used your car for a charitable purpose. 140 ez If you use the standard mileage rate of 14 cents a mile, your records must show the miles you drove your car for the charitable purpose. 140 ez If you deduct your actual expenses, your records must show the costs of operating the car that are directly related to a charitable purpose. 140 ez   See Car expenses under Out-of-Pocket Expenses in Giving Services, earlier, for the expenses you can deduct. 140 ez How To Report Report your charitable contributions on Schedule A (Form 1040). 140 ez If your total deduction for all noncash contributions for the year is over $500, you must also file Form 8283. 140 ez See How To Report in Publication 526 for more information. 140 ez Prev  Up  Next   Home   More Online Publications
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140 ez 2. 140 ez   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. 140 ez How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. 140 ez Deferral percentage. 140 ez Employee compensation. 140 ez Compensation of self-employed individuals. 140 ez Choice not to treat deferrals as compensation. 140 ez Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. 140 ez Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. 140 ez S. 140 ez Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. 140 ez Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. 140 ez A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. 140 ez SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). 140 ez A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). 140 ez Eligible employee. 140 ez   An eligible employee is an individual who meets all the following requirements. 140 ez Has reached age 21. 140 ez Has worked for you in at least 3 of the last 5 years. 140 ez Has received at least $550 in compensation from you in 2013. 140 ez This amount remains the same in 2014. 140 ez    You can use less restrictive participation requirements than those listed, but not more restrictive ones. 140 ez Excludable employees. 140 ez   The following employees can be excluded from coverage under a SEP. 140 ez Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. 140 ez Nonresident alien employees who have received no U. 140 ez S. 140 ez source wages, salaries, or other personal services compensation from you. 140 ez For more information about nonresident aliens, see Publication 519, U. 140 ez S. 140 ez Tax Guide for Aliens. 140 ez Setting Up a SEP There are three basic steps in setting up a SEP. 140 ez You must execute a formal written agreement to provide benefits to all eligible employees. 140 ez You must give each eligible employee certain information about the SEP. 140 ez A SEP-IRA must be set up by or for each eligible employee. 140 ez Many financial institutions will help you set up a SEP. 140 ez Formal written agreement. 140 ez   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. 140 ez You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. 140 ez However, see When not to use Form 5305-SEP, below. 140 ez   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. 140 ez Keep the original form. 140 ez Do not file it with the IRS. 140 ez Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. 140 ez See the Form 5305-SEP instructions for details. 140 ez If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. 140 ez When not to use Form 5305-SEP. 140 ez   You cannot use Form 5305-SEP if any of the following apply. 140 ez You currently maintain any other qualified retirement plan other than another SEP. 140 ez You have any eligible employees for whom IRAs have not been set up. 140 ez You use the services of leased employees, who are not your common-law employees (as described in chapter 1). 140 ez You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. 140 ez An affiliated service group described in section 414(m). 140 ez A controlled group of corporations described in section 414(b). 140 ez Trades or businesses under common control described in section 414(c). 140 ez You do not pay the cost of the SEP contributions. 140 ez Information you must give to employees. 140 ez   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. 140 ez An IRS model SEP is not considered adopted until you give each employee this information. 140 ez Setting up the employee's SEP-IRA. 140 ez   A SEP-IRA must be set up by or for each eligible employee. 140 ez SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. 140 ez You send SEP contributions to the financial institution where the SEP-IRA is maintained. 140 ez Deadline for setting up a SEP. 140 ez   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. 140 ez Credit for startup costs. 140 ez   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. 140 ez For more information, see Credit for startup costs under Reminders, earlier. 140 ez How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. 140 ez If you are self-employed, you can contribute to your own SEP-IRA. 140 ez Contributions must be in the form of money (cash, check, or money order). 140 ez You cannot contribute property. 140 ez However, participants may be able to transfer or roll over certain property from one retirement plan to another. 140 ez See Publication 590 for more information about rollovers. 140 ez You do not have to make contributions every year. 140 ez But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). 140 ez When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. 140 ez Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. 140 ez A SEP-IRA cannot be a Roth IRA. 140 ez Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. 140 ez Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. 140 ez If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. 140 ez Participants age 70½ or over must take required minimum distributions. 140 ez Time limit for making contributions. 140 ez   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. 140 ez Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. 140 ez Compensation generally does not include your contributions to the SEP. 140 ez The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. 140 ez Example. 140 ez Your employee, Mary Plant, earned $21,000 for 2013. 140 ez The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). 140 ez Contributions for yourself. 140 ez   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. 140 ez However, special rules apply when figuring your maximum deductible contribution. 140 ez See Deduction Limit for Self-Employed Individuals , later. 140 ez Annual compensation limit. 140 ez   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. 140 ez However, $51,000 is the maximum contribution for an eligible employee. 140 ez These limits are $260,000 and $52,000, respectively, in 2014. 140 ez Example. 140 ez Your employee, Susan Green, earned $210,000 for 2013. 140 ez Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. 140 ez More than one plan. 140 ez   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. 140 ez When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. 140 ez Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. 140 ez Tax treatment of excess contributions. 140 ez   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. 140 ez 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). 140 ez $51,000. 140 ez Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. 140 ez For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. 140 ez Reporting on Form W-2. 140 ez   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). 140 ez Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. 140 ez If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. 140 ez Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. 140 ez Your contributions (including any excess contributions carryover). 140 ez 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. 140 ez In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. 140 ez Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. 140 ez When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. 140 ez The deduction for the deductible part of your self-employment tax. 140 ez The deduction for contributions to your own SEP-IRA. 140 ez The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. 140 ez For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. 140 ez To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. 140 ez Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 140 ez Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. 140 ez However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. 140 ez If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. 140 ez Excise tax. 140 ez   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. 140 ez For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. 140 ez When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. 140 ez If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. 140 ez If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. 140 ez Example. 140 ez You are a fiscal year taxpayer whose tax year ends June 30. 140 ez You maintain a SEP on a calendar year basis. 140 ez You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. 140 ez Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 140 ez For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. 140 ez S. 140 ez Return of Partnership Income; and corporations deduct them on Form 1120, U. 140 ez S. 140 ez Corporation Income Tax Return, or Form 1120S, U. 140 ez S. 140 ez Income Tax Return for an S Corporation. 140 ez Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 140 ez (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 140 ez , you receive from the partnership. 140 ez ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. 140 ez Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. 140 ez (See the Caution, next. 140 ez ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. 140 ez This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. 140 ez You are not allowed to set up a SARSEP after 1996. 140 ez However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. 140 ez If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. 140 ez Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. 140 ez At least 50% of your employees eligible to participate choose to make elective deferrals. 140 ez You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. 140 ez The elective deferrals of your highly compensated employees meet the SARSEP ADP test. 140 ez SARSEP ADP test. 140 ez   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. 140 ez A highly compensated employee is defined in chapter 1. 140 ez Deferral percentage. 140 ez   The deferral percentage for an employee for a year is figured as follows. 140 ez   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. 140 ez Employee compensation. 140 ez   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. 140 ez Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. 140 ez See Compensation in chapter 1. 140 ez Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. 140 ez Compensation of self-employed individuals. 140 ez   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. 140 ez   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. 140 ez Choice not to treat deferrals as compensation. 140 ez   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. 140 ez Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. 140 ez 25% of the participant's compensation (limited to $255,000 of the participant's compensation). 140 ez $17,500. 140 ez The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. 140 ez Cash or deferred arrangement (section 401(k) plan). 140 ez Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). 140 ez SIMPLE IRA plan. 140 ez In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. 140 ez Catch-up contributions. 140 ez   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 140 ez The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. 140 ez Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). 140 ez However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 140 ez The catch-up contribution limit. 140 ez The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 140 ez   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). 140 ez Overall limit on SEP contributions. 140 ez   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). 140 ez The same rule applies to contributions you make to your own SEP-IRA. 140 ez See Contribution Limits , earlier. 140 ez Figuring the elective deferral. 140 ez   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. 140 ez Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. 140 ez However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 140 ez Excess deferrals. 140 ez   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. 140 ez For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. 140 ez The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. 140 ez See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. 140 ez Excess SEP contributions. 140 ez   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. 140 ez You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. 140 ez If you do not notify them within this time period, you must pay a 10% tax on the excess. 140 ez For an explanation of the notification requirements, see Rev. 140 ez Proc. 140 ez 91-44, 1991-2 C. 140 ez B. 140 ez 733. 140 ez If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. 140 ez Reporting on Form W-2. 140 ez   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 140 ez You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 140 ez You must also include them in box 12. 140 ez Mark the “Retirement plan” checkbox in box 13. 140 ez For more information, see the Form W-2 instructions. 140 ez Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. 140 ez Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. 140 ez Distributions are subject to IRA rules. 140 ez Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. 140 ez For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. 140 ez Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. 140 ez Making excess contributions. 140 ez Making early withdrawals. 140 ez Not making required withdrawals. 140 ez For information about these taxes, see chapter 1 in Publication 590. 140 ez Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. 140 ez Prohibited transaction. 140 ez   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. 140 ez In that case, the SEP-IRA will no longer qualify as an IRA. 140 ez For a list of prohibited transactions, see Prohibited Transactions in chapter 4. 140 ez Effects on employee. 140 ez   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. 140 ez The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. 140 ez Also, the employee may have to pay the additional tax for making early withdrawals. 140 ez Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. 140 ez See Setting Up a SEP , earlier. 140 ez Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. 140 ez You must also give them notice of any excess contributions. 140 ez For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). 140 ez Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. 140 ez For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. 140 ez Prev  Up  Next   Home   More Online Publications