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Posted December 12th, 2016

Let’s Look at Some Gifts That Are Not Deductible

An illustration of a US dollar bill folded into a paper airplane and thrown as related to frivolous spending or expensive debt with little or no return.

That is, not deductible for federal income tax purposes.

Gift of services – A gift of services (say, specialized investment or accounting services) may be valuable to a charity; but the value of the services is not deductible. The provider of the services may be awarded gift credit, of course. The IRS doesn’t care about that. Any related out-of-pocket costs incurred by the provider (such as cab fares and airline tickets) are deductible, provided the provider obtains the necessary gift receipt(s) from the charity.

Gift the use of an asset – We’re considering here an asset such as office space or an airplane. Same rule here as to related out-of-pocket costs, such as airplane fuel or catering costs; they’re deductible if substantiated. But the value of the use of the asset is not deductible.

Frequent flier miles – These aren’t considered an asset for federal income purposes. So, no deduction for donating them.

Government papers – These are an asset for purposes of the charitable deduction only to the extent the donor has a basis in them; which would be the case, for example, if the donor bought them at auction.

Non gifts – Sometimes what looks like a gift isn’t a gift; so it doesn’t qualify as a charitable contribution. Example: Money paid to charity pursuant to a plea bargain (not voluntary, so not a gift).

Gifts for which little or no deduction is allowedExample: Gift of a work of art by the artist. Charitable deduction is limited to cost of materials.

This area of giving can be tricky, because it’s easy to confuse gift crediting with tax deductibility. It’s important to understand that non-deductibility is not the same as lacking value. For more details, contact your Sharpe Group representative, or see IRS Publication 526.

by Jon Tidd

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