Charitable Giving Through Payroll Deductions

by:  Dennis J. Fitzpatrick
Kaufman Rossin & Co.

Giving to churches, schools, domestic governmental bodies and "qualified non-profit organizations" can generate an itemized deduction on your personal income tax return (Schedule A of Form 1040). The deduction for cash contributions to appropriate organizations is, generally, limited to 50% of your adjusted gross income for any particular tax year. Adjusted gross income is the amount of income shown on the last line of page one of your Form 1040. Your actual deduction is dependent upon your particular tax status. Contributions in excess of this 50% limitation may be carried forward and deducted in the succeeding five tax years (subject to the same 50% limitation).

"Qualified non-profit organizations" are charitable organizations that have qualified as a non-profit organization with the Internal Revenue Service. Availability of a tax deduction depends on the proper choice of the donee organization. Availability of a tax deduction also depends on proper documentation of the contribution. For instance, a contribution to a charitable organization in excess of $250 also requires specific documentation from the organization.

Making charitable contributions through payroll deductions is a convenient method to comply with the charitable contribution rules of the Internal Revenue Service. Your employer has a board of people to screen potential donee organizations so you do not have to ascertain whether a donee is "qualified". Also, each deduction from your payroll check is treated as a separate deduction so you do not have to concern yourself about receiving the appropriate documentation from donee organization. Finally, the only documentation you need to substantiate your deductions is the W-2 your employer provides to you.

Individuals enjoy a tax benefit for making gifts to charitable organizations. This tax benefit is in addition to the personal satisfaction of knowing that you have helped worthwhile causes. Making those deductions through payroll deductions is an easy way to obtain those deductions and that personal satisfaction.