It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, you won’t want to miss it.
Q is for Quid Pro Quo
Admit it, when you hear “quid pro quo,” you think of this.
Quid pro quo. I tell you things, you tell me things. Not about this case, though. About yourself. Quid pro quo. Yes or no?
It’s the same idea in the tax world. Only less creepy and there will be no mention of fava beans.
Quid pro quo is a payment a donor makes to a charity in exchange for something: typically, it’s partly as a contribution and partly for goods or services.
The classic example is the pledge tote bag. When you call into a charity like public radio or public television, you often do so because you’ve been incentivized to call in exchange for a gift. Your $500 donation may net you a charitable deduction AND a nifty tote bag. Let’s assume the tote bag is worth $100 because it’s filled with Hamilton CDs. The charitable contribution is $400, not $500, because you’ve received $100 worth of stuff in return for your gift. Got it?
In that case, the charitable organization has to issue a disclosure statement. The disclosure statement must be written and must advise you of the amount of the contribution that is deductible for federal income tax purposes. That amount is limited to the excess of any money (and the value of any property other than money) you contributed less the fair market value of goods or services received. And again, because it may be hard for you to figure on your own, the charity must provide you with a good faith estimate of the fair market value of the goods or services that you received.
But let’s say that instead of a tote bag filled with Hamilton CDs, you just got a cheap charity-branded poly tote bag? Does the charity still need to disclose? No. If the goods or services received have “insubstantial value” such as charity-branded token items (check out Revenue Procedure 90-12 which downloads as a pdf, for more info and more example), then those items, including “low cost” items and certain newsletters are exempt from the reporting rules.
If the organization doesn’t provide that information to donors, they can be penalized if the quid pro quo contribution is more than $75.
And what about you? If you’re not sure whether you’ve received goods or services that would reduce your charitable deduction, just ask.
For more Taxes A to Z, check out:
- A is for Affordable Care Act Reporting
- B is for Back Pay
- C is for Canceled Debt
- D is for Dependents
- E is for Eligible Rollover Distributions
- F is for Fat Finger Error
- G is for GI Bill
- H is for Harvesting Losses
- I is for Investment Income Expense
- J is for Junk Bonds
- K is for Strike Price
- L is for Late Filing & Late Payment Penalties
- M is for Marginal Tax Rate
- N is for NSF
- O is for Over-The-Counter Medications
- P is for Pease Limitations