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I work for nonprofit 501(c)(3) organization and I plan to donate a few items for this organization. Can I make this donation tax-deductible? Is it a problem that I work for them (and I will have their W2) on my tax return?

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Valuation is a constant problem any time you donate non-cash assets to a charity... whether you work there or not.

The issue is obvious. You say the item was mint condition and want to claim its sticker price; IRS says it was a worn out piece of junk and wants to give you $1. Justifying valuation is all on the donor. The charity isn't even involved; their duty is to write you an acknowledgement letter saying that you did, indeed, donate certain items and state their condition not their value.

At audit time, you must prove value to the IRS, using any means which will persuade a tax court judge.

As an insider, you are totally allowed to donate. Of course, at audit time, any such donations will face increased scrutiny, as IRS may investigate whether the donations are phoney. Signing the acknowledgement letter yourself is probably a bad plan.

An audit could come at you from two directions. First an audit of your personal taxes obviously. Second an audit of the charity's Form 990 annual tax return. Being an insider increases the reporting threshold (makes it more likely) that your identity and your gifts would need to be disclosed on the 990... which is a public document, seen by many, any of whom could report a matter of concern to the IRS.

And one more thing. You are not allowed to deduct the value of your work product. Say they need a sign in front of the building. You put $100 of materials into a sign you normally charge $1000 for. You donate the sign. You can only deduct $100. Now, the auditor can see the sign on Google Street View and can affirm it exists, and looks like a $1000 sign. He won't look twice at $100 in matériel, its believable.

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  • Thank you, @Harper! Some ideas you mentioned in your answer, crossed my mind yesterday, when I was reading Publ.526. Good that you mentioned Form 990 and its schedules, I will take a look at it. Sep 13, 2016 at 1:39
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Shouldn't be a problem. If it's a legitimately deductible donation by the normal definition, the fact that you are also working for them shouldn't matter.

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  • Thank you, @keshlam! Do you know, by any chance, any IRS document which could confirm your opinion? I am reading through IRS rules right now (here: irs.gov/taxtopics/tc506.html), but I can't find anything about subject of the topic. Sep 11, 2016 at 16:22
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    @SleepyHollow - I worked in the non-profit sector for many years and made several contributions (financial and items donated) that were tax deductible. As long as you have a donation letter/receipt, you're good to go. The IRS won't mention this specifically because there's no reason to.
    – BobbyScon
    Sep 12, 2016 at 1:18
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    Exactly. There is no prohibition, therefore there is nothing to cite. Though if you search the URS's own FAQ pages someone might have asked/answered it there.
    – keshlam
    Sep 12, 2016 at 3:08
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    Actually they discuss at length the matter of insiders donating to an organization, in the filing instructions for the Form 990 and its schedules. Sep 12, 2016 at 17:11
  • Ah! Tnx for the correction, @harper.
    – keshlam
    Sep 12, 2016 at 18:22
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The risk is that the IRS doesn't believe you made the donation. So you counter this by having proof. Money by check or credit card is good.in fact this is a recent change to the tax law.

If it goods you are donating then get a receipt. Even if the amount wouldn't require it. Also have an appraisal so that you have a third party determining the value.

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