American expats can deduct charity donations of money, clothing and household items on US expatriate tax returns, however, it is important to follow several IRS rules in regards to charitable contributions.
This is the story of one of our clients. “Jeff contacted us after he received a letter from the IRS about his charity donations to the World Food Program. Although, Jeff made charitable contributions, the payment was made to the WFP headquarters in Rome instead of the WFP USA. Since he didn’t make a donation to a qualifying charity, his charity donation was not allowed on US expatriate tax returns.
General guidelines for charity donations for American expats
Timing of charitable contributions
Charity donations can be deducted only in the year that they were made. For example, American expats made contributions by using a credit card in 2012, however, the credit card bill was paid in 2013. This contribution is deducted in a year 2012. Checks must be mailed in 2012 in order to be counted on 2012 tax return.
It is important to make charitable contributions to a qualified organization. A searchable database of exempt organizations is available on the IRS website. Donations to many foreign charities or United Nations Agencies cannot be deducted on US expatriate tax returns unless the payment is made to the USA affiliate.
In order to deduct charity donations, American expats must file a Schedule A and itemize deductions. It is advantageous to do so if the total value of itemized deductions exceeds a standard deduction.
Motor vehicle, boat or airplane donations
These charity donations are usually limited to the gross proceeds from the sale.
Record keeping. It is important to keep written records of all donations.
- Property donation. If American expats donate property, including clothing and household items, they should get a receipt from a charity indicating the name of the charity, contribution date and property description. In case of drop-off locations American expats should keep a written record of charity donations that indicates the fair market value of the property as well as the method used to determine the value. If a tax deduction for all property (noncash) contributions exceeds $500, the form 8283 must be filed with US expatriate tax returns.
- Cash donation. In case of cash charitable contributions, a bank record including canceled checks, bank or credit union statements, and credit card statements should be kept on file.
- Payroll donation. Pay stub, form W-2 or any other document provided by employer must be maintained.
- Charity donations over $250. A letter from a charity is required for each deductible donation of $250 or more.
The following charitable contributions are not tax deductible:
- Charitable contributions to individuals
- Dues to professional organizations
- Donations to political parties and campaigns
- Charitable contributions to for-profit schools and hospitals
- Donations to foreign governments
- Value of time or services including blood donation to the Red Cross or any blood bank. Value of services as an unpaid volunteer is not deductible either.
These are some of the basic issues that American expats must consider before deducting charity donations on US expatriate tax returns.
If you need help with US expatriate tax preparation, please seek help of an expatriate tax CPA that provides international tax services. International tax experts at Artio Partners are here to help you.