Charity begins at work

Q. I want to donate a computer to my department and take the charitable contribution deduction. My tax preparer says that if I later use the computer at work, then it's not a gift. Her position is that I should deduct it as an unreimbursed professional expense, subject to the 2 percent floor. What do you recommend?

--Lawrence R., Kansas City, Mo.

Brad: Looks like you are trying to circumvent the 2 percent threshold for "unreimbursed employee expenses" on Schedule A by donating a computer to your department and then having it installed in your office. Is that the case, Lawrence? If so, we might have to send you a smart frog T-shirt. It could be just the thing to keep you warm when you are serving time for tax fraud!

Bob: I like this angle! It just might work. There may be a few things that will have to be in place to make it happen, though. For example, Lawrence, you need to be working at an institution that qualifies as a charitable organization. If you are employed at a public educational institution, then it probably qualifies. If it is private, then this could be a problem.

Brad: The second issue is, are you really giving it to your department? For your gift to qualify as a gift or charitable donation, you generally must relinquish any control over the property you donate. A number of parents have tried to claim college tuition payments for their children as charitable contributions. The IRS disallowed these "charitable contributions" because the "donation" carried a specific recipient's name with it. These clearly were not gifts to the institution at all, because the institutions were not free to use the money in general scholarship funds. You need to be able to have the chair of your department willing to state that it was his or her free decision to put that computer in your office or otherwise make it available for you to use.

Bob: Something else to consider is that when you donate money or property, you may only deduct the excess of what you gave over the value of what you received in exchange. This could mean this whole maneuver might be just a wash. That is, the IRS could argue that, even if it was a gift, the value of what you received from the department (use of the computer) offsets the value of the contribution you made. So in the end, you'd get no deduction at all!

Brad: So there are some risks with this approach, Lawrence, especially if it pushes up the amount you deduct for charitable contributions into red flag territory. Taxpayers with overall incomes (not adjusted gross incomes) in the 50K to 100K range average about $2,000 in charitable contribution deductions. A significant deviation above this may "kick out" your return for closer inspection.

Bob: To sum up, Lawrence, we are not saying "no" to your angle. Many faculty members routinely give personal property to their schools, and their deduction is unchallenged by the IRS. There is nothing wrong about donating an aging auto to the auto-shop program or refrigerators to home economics (or other programs). Just be careful that you meet the record-keeping requirements of the IRS.

Brad: The record-keeping requirements are as follows: For individual gifts that exceed $250, you need a written receipt from the charitable organization that includes the amount of cash contributed or a description of the goods given; whether you received anything of value greater than $7.40 in return; and a good-faith estimate of the goods the charity received. If your gift has a value greater than $500, you will need records showing when and how you acquired the property and your basis in the property, as well as the other information. If your donation is worth more than $5,000, you can add to the list above an expert's appraisal of the property; the appraisal must have been made within 60 days prior to your donation; the appraisal must be filed with your 1040.

Bob: One last reminder, Lawrence. Making charitable contributions at the end of the year can be a very effective tax management strategy. It is especially tax wise to donate appreciated property, because you are permitted to deduct the actual value of the property rather than what you paid for it.

American Federation of Teachers, AFL•CIO - 555 New Jersey Avenue, NW - Washington, DC 20001