For most people, it makes sense that charitable contributions are deductible only when the contributions are actually paid: a taxpayer couldn’t take a deduction in 2014 after giving a promise (no matter how good the promise is) to make a charitable contribution sometime during the year 2015. See Rev. Rul. 68-174, 1968-1 C.B. 81. Even if the taxpayer actually makes the contribution later on in 2015, the deduction cannot be claimed in 2014–it can only be claimed in 2015.

That’s easy enough, but what about in cases where a taxpayer makes a charitable contribution by personal check just before the end of the tax year, before the charity that the taxpayer makes the contribution to can actually cash the check? Technically speaking, in this case the taxpayer has not really made the contribution quite yet – the funds have not been withdrawn from the taxpayer’s checking account, and the taxpayer could even stop payment on the check after the fact.

Regardless, payments by check are considered to be cash equivalent, so long as the check “clears in due course.” Payments by check therefore could be considered an exception to the standard rule of timing in that the deduction may be taken by the taxpayer as soon as the gives the check (i.e. makes an “unconditional delivery”) to the donee, regardless of whether or not the charity that receives the donation actually cashes the check before the end of the year. If the taxpayer mails the check to the donee, the taxpayer may take the donation in the year the check is mailed.1

Payments by credit card are similarly considered cash equivalent, and a deduction may be taken in the year that the taxpayer’s credit card is charged, regardless of when the taxpayer ultimately repays the credit card issuing company. For purposes of the deduction, credit card payments are equivalent to cash payments due to the fact that a taxpayer’s use of a credit card to make a contribution causes the taxpayer to become “immediately indebted to a third party … in such a way that the [taxpayer cannot] prevent the [recipient] from receiving payment.”2

 

Notes

  1. See Treas. Reg. §1.170A-1(b).
  2. Rev. Rul. 78-38, 1978-1 C.B. 67. This revenue ruling represents a reversal of a previous revenue ruling stating that contributions made via credit card payments are not deductible until the resulting balance on the credit card is paid by the taxpayer to the servicing company. See Rev. Rul. 71-216, 1971-1 C.B. 96.

Blake is a CPA and a law school graduate specializing in taxology, tax and finance process automation and optimization, and cloud accounting systems.