Spiffs are “gifts” given by charities in exchange for your donation. A kind of gift with the purchase, so to speak. Common gifts for charitable car donations include airline tickets and vacation packages. They are not exactly gifts and there are terms and conditions that you should know.

Businesses know the value of free advertising and one way to get it is to make a deal with a charity. The company will provide access to its services or quantities of its products in exchange for the charity offering them publicly as incentives for donations. This is a win-win-win situation. The charity receives donations from the backers, the backers get a “spiff” in return, and the company that donated the spiffs gets free publicity. Everybody is happy.

Let’s say that when you make a donation, a charity offers you a free two-night “spiff” at a hotel in a popular tourist destination. Great. But what most people don’t know is that you must report the value of the spiff as income on your taxes. And yes, you will pay income tax on that amount. This effectively reduces the net value of the tax deduction associated with your donation. This isn’t a big deal if the value of the spiff is insignificant, but a large spiff can almost completely offset your allowable tax deduction.

Often these spiffs can turn out to be a better deal than you can get or negotiate yourself.

Are you looking for tickets to the most popular show in town? Donate your car and receive two of these tickets in return. For some people, the intangible value received far outweighs the tax consequences.

Have you searched high and low trying to find the newest and coolest toy for your child or grandchild? Charities keep track of these things and sometimes secure quantities of the newest products. They then run promotions that entice customers to make large donations in exchange for receiving these hot products like spiff. Even if the spiff consumes a lot of your actual donation value, how can you put a price on your child’s or grandchild’s happiness?

Let’s look at the negative side of this practice. Let’s say you’re seeking a $500 tax deduction and you receive two tickets with a combined value of $100. Technically, you’ll only be allowed to take a $400 charitable tax deduction. And you must report $100 worth of the tickets as income, which will then be taxed at the same rate as the rest of your income.

Another negative aspect of this practice is that spiffs are often difficult to use or collect. Sometimes the companies that donate them set the redemption rules to make it extremely difficult to actually receive the value they put on them, which you now have to report as income. These types of businesses are looking to “cash in,” so to speak, by receiving a charitable tax deduction, but they don’t really want to spend the cash, product, or service when it comes time for redemption.

There is also the possibility of abuse by unscrupulous types. They may make a legitimate donation to receive the spiff, but they’ll turn around and offer it for sale at an inflated price, especially if it’s tickets to a must-see event or a hot new product. This can negatively affect the reputation of the issuing charity.

The moral of the story is to educate yourself and deal with known and reputable charities.