Wednesday, December 10, 2008

ASK THE TAX PRO - CHARITABLE CONTRIBUTIONS

Q. Just wondering -- if we buy candy, 50/50 raffles, etc. from co-workers/friends/family for the benefit of schools or scouts, are we allowed to deduct the expenses on our tax return? (Sometimes, each order amounts to $40 or so.) If yes, should we pay by check each time?
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A. When giving me a list of charitable contributions for the year many clients will include the cost of raffle tickets, including 50-50s, purchased for the benefit of a church or school. Regardless of who is selling them (i.e. church or charity) 50-50 raffle tickets, or any kind of raffle tickets, are not charitable contributions - they are gambling. To repeat - raffle tickets are not deductible as contributions.

If you are reporting taxable gambling winnings on Line 21 of your Form 1040 - from whatever source (i.e. casinos, racetrack, lottery, raffle, etc) - the cost of raffle tickets are deductible as a gambling expense (to the extent of the winnings reported) as a miscellaneous deduction (deductible in full – not subject to 2% of AGI exclusion) if (and only if) you itemize on Schedule A.

The only possible instance in which you could claim a charitable deduction for a raffle ticket is if you purchased a ticket and then donated the ticket itself back to the charity so they could sell it again. In such a situation you would not have any chance of winning the item(s) being raffled.

For the most part the purchase of candy, cookies, etc from a church or charity (most common example being Girl Scout Cookies) is not deductible as a charitable contribution. You are not making a contribution - you are buying something of value for a fair market price.
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The only exception would be if, for example, the normal market value of a box of cookies is $3.00 and the charity is selling them for $10.00. In this case $7.00 would possibly be deductible. But in most cases the cookies and candy are being sold for pretty much what you would pay in the store - so no tax deduction.

TTFN

6 comments:

Tiffany Carlson said...

If someone wins the 50/50 and then donated their winnings back can they claim that? And do they have to claim the winnings on their taxes as well as gambling winnings.

Robert D Flach said...

TC -

Perhaps the better thing to do is for the winner to “disclaim” the winnings so the money reverts to the charity. In this case he/she never received any winnings and no 1099-G would need to be issued and no income reported on the 1040.

While accepting the winnings and donating the money back to the charity would provide a tax deduction on Schedule A, and result in a wash, having to claim the winnings upfront would increase AGI and could affect other deductions or credits.

Does anyone disagree?

TWTP

Anonymous said...

What if I won money in a 50/50 raffle but the 501c3 that organized the raffle never sent me a form to report the income? I won in early 2014 and it is now February 7, 2015 and I haven't received anything. Do I report it on my taxes anyway even though I don't have any proof?

Robert D Flach said...

Anon-

Of course! You must report taxable income received even if you do not receive a Form 1099 or W2-G.

The organization is not required to issue a Form W-2G unless the win is "$600 or more, and at least 300 times the amount of the wager".

Of course you can deduct gambling losses, including the cost of the 50-50 ticket, up to the amount of the win on Schedule A.

TWTP

Anonymous said...

My mother purchased a 50/50 raffle ticket at our church and put my 8 yr old daughters name on it. She wrote out the ticket in front of the sellers and no one said that she couldn't have her name on the ticket. My daughter proceeds to win the 1st place prize for the raffle. The church is telling me that the winnings can not be in my daughters name because she is under 18 and it is considered gambling. No where on the ticket does it state that you must be 18 to purchase. They say I need to claim the winnings and pay the taxes on it. I've tried googling this info but can't find anything on it. I feel the winnings and 1099 should be in her name. Thoughts or can you direct me to a link where it states the church to be correct? Thanks in advance!

Robert D Flach said...

Anon-

I have never come across this situation before.

There is no tax reason, that I am aware of, why a minor cannot have gambling winnings.

Perhaps the prohibition has something to do with the state or local "blue laws" related to gambling.

RDF