It is possible to take a charitable contribution deduction for the donations you make to schools. However, not every school to which you make a donation is eligible to receive donations for which you can claim a deduction on your tax return. Since there are various types of schools -- including state-supported public schools, private nonprofit schools and schools that operate to earn profits like a business -- the most important factor to consider before anything else is whether the institution is an IRS-qualified organization.
Eligible Tax-Exempt Schools
Only those schools that receive approval from the IRS as a tax-exempt entity under section 501 of the Internal Revenue Code are eligible to receive donations for which you can take a deduction on your tax return. The only exceptions to this general guideline are for public schools and for institutions run by a religious organization – both of which are automatically tax-exempt under the law. But for a private school to obtain tax-exempt status, it must operate as a nonprofit and satisfy a number of other requirements, such as operating predominantly to educate students in the community it’s located in. Therefore, before making a donation to a private school, you should consult the IRS’ electronic database of tax-exempt entities to ensure you’ll be able to take a deduction.
The majority of taxpayers who file a tax return have the option to itemize their actual deductible expenses or to claim the standard deduction, but donations to schools are only deductible if you itemize on Schedule A. Itemizing can save you more in tax if the total amount of expenses you report on Schedule A, including school donations, is more than the standard deduction for your filing status.
Figuring out how much to deduct could be uncomplicated if the donations you make to tax-exempt schools consist solely of cash. When you donate property, such as cars, household items or used clothing, your donation deduction is equal to the property’s fair market value, which is the price you could reasonably obtain if you sold the property rather than donated it.
Benefits from School
If you receive something from the school in exchange for the donations you make, such as a tuition reduction, the IRS won’t allow you to deduct the entire donation. You must subtract the value of the benefit the school provides you from the value of your donations. For example, if you donate a car worth $10,000 to your son’s private school but receive a $1,000 tuition waiver for it, the part of your donation that is tax-deductible is reduced to $9,000.
Since your goal is to reduce your taxes with your school donations, it’s important to be aware of valuation penalties that can apply to donations of property that you overvalue. In other words, if you donate a car that’s worth $10,000 but report a deduction of $15,000, you may end up paying a penalty for it. A 20 percent penalty on the tax you underpay will be charged if you overvalue the donation by at least 150 percent, while a 40 percent penalty will apply if the overvalued amount is 200 percent or more of the property’s actual value.
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