Charity Contributions, Gifts as Tax Deduction
To deduct charitable contributions on your income tax return (ITR), you need to itemize your deductions. With the standard deduction nearly doubling in 2018, fewer people choose to itemize. However, if your total itemized deductions, including charitable contributions, exceed the standard deduction, it may be beneficial to do so.
Tax Benefits for Donations
For individual income tax returns, there are two deduction methods: itemized deductions and the standard deduction method. For a taxpayer to take a tax deduction for a charitable contribution, the itemized deduction Schedule A is required.
A standardized deduction is a fixed dollar amount you are entitled to deduct from your income based on your personal filing status. With an itemized deduction, you list each item that qualifies for as a deduction. You can only claim one of these methods: standardized or itemized deduction on your tax return. In addition to either one of these, you can also take above-the-line deductions. It may be worth itemizing and claiming charitable donations if your total deductions are greater than the standard deduction.
Learn more about the difference between the standard deduction and itemized deductions.
You can take a tax deduction for charitable donations made to a qualified organization on your individual income tax return. You may donate between 1% and 2% of your annual income or you could choose to donate less or more, depending on your personal situation. There is a limit on how much of your charitable donation is tax deductible. For cash, this is 60% of your adjusted gross income or AGI.
KEY TAKEAWAYS
- To deduct charitable contributions on your tax return, you must itemize your deductions instead of taking the standard deduction. This involves listing all qualifying expenses.
- Only donations to qualified organizations are tax-deductible. These include recognized charities, religious institutions, and non-profit organizations that help communities or provide educational services.
- Keep detailed records of your donations, such as receipts and written acknowledgments from the organizations you donate to. This documentation is crucial for verifying your deductions with the IRS.
- There are limits to how much you can deduct. Cash donations can be deducted up to 60% of your adjusted gross income (AGI), while non-cash items have their own specific rules.
- Besides cash, deductible donations can include food, clothing, household items, vehicles, and appreciated stocks. Each type has specific rules and documentation requirements.
The easiest way to find out if you can deduct your charitable donations is to prepare a free tax return on eFile.com. Based on your answers to the tax questions, we will determine whether or not you can claim the tax deduction on the donations you made to charity during the tax year. You can start your return for free to get an idea of your taxes; see our tax services and fees here once you are satisfied with your return. The app will also calculate the amount you can deduct based on your AGI.
In order for your charitable donation to make a difference on your taxes, you will need to donate enough so that your total deductions are greater than your standard deduction. For example, as a single person, if your donation to charity, home mortgage deduction, retirement contributions, and medical expenses exceed $13,850, then you should itemize deductions and claim your charitable contributions.
Instructions: how to add your donation(s) to charity on your return.
Let's now explore what kinds of organizations qualify as charitable, deductible charity-related transportation costs, and various other restrictions.
Deductible Charitable Contributions
When planning your donation, keep the following points in mind:
- Research and be sure the organization is a qualified organization.
- Document everything, including original receipts of items you donate (if applicable) and a written notice of the donation. Additionally, keep transactional proof of the donation, like a receipt, bank statement, credit card statement, etc.
- Use tax software to e-file your Schedule A with your donations so you do not have to mail any supporting documents - just keep receipts and paperwork in case the IRS requests it.
A deductible charitable contribution is a donation or gift made to a qualified charitable organization. The donation must be made voluntarily and with no expectation of any substantial reward or benefit. Generally, you can deduct any cash contributions you make and/or the fair market value of any donated property, such as clothing, household items, or vehicles. You can also claim a deduction for the contribution of stocks.
Cash Donations
A cash donation includes money contributed by check, credit card, electronic funds transfer (EFT), or payroll deduction. The donation cannot exceed 60% of your adjusted gross income (AGI) in order to qualify as a tax deduction. For example, if you made $100,000, then you can donate and deduct up to $60,000. You must obtain a receipt for any amount of money you donate in order for your contribution to be qualified.
Note: For 2021 and 2020, you could deduct cash donations to public charities up to 100% of your adjusted gross income - AGI. Cash donations to donor-advised funds and other entities were excluded from the 100% deduction. This was for Tax Years 2020 and 2021 only; you cannot deduct charitable cash donations and claim the standard deduction.
Food, Clothing, and Household Items Donations
You can deduct the fair market value of food, clothing, or household items such as furniture, furnishings, linens, appliances, and electronics. Any donated household item must be new or used but in good condition. There is no fixed method for determining the value of donated items, but if you need guidance, see IRS Publication 561 - Determining the Value of Donated Property.
Car and Vehicle Donations
You may donate cars, trucks, boats, or even planes. The value of your donation will be determined by how the charitable organization uses the vehicle. The organization will provide you with paperwork describing how the vehicle was used and, if it was auctioned, what the selling price was. Be sure to obtain and keep this paperwork, even after you file your return. You might need it if the IRS contacts you and requests further information, or if you are audited by the IRS.
A non-profit organization will generally either auction a vehicle, refurbish it and donate it (or sell it to a needy buyer at a vastly reduced price), or make use of it themselves. If your car is sold at auction for over $500, you can deduct the full selling price of the vehicle on your tax return. If your car is auctioned for $500 or less, you can deduct the greater of the selling price or the fair market value. This means you will generally be able to deduct at least $500.
If a car is refurbished and/or repaired, then given away or sold to a needy buyer, you can generally deduct the fair market value of the vehicle. If the vehicle is used by the organization for other purposes, you may also generally deduct its fair market value.
Also Read: Details on Donating a Vehicle to Charity.
Donations from IRAs
If you are 70 1/2 or older and have an individual Retirement Account, or IRA, you may directly donate a certain amount of your IRA funds tax-free to a qualified charitable organization. This is generally limited to $100,000 annually. You may not deduct the value of your time or donated professional services.
Qualified Charitable Organizations
If you intend to deduct your donation, make sure you are donating to a qualified charitable organization. The following organizations generally qualify:
- Nonprofit hospitals and health clinics; nonprofit schools and other educational organizations; generally, any nonprofit organization which helps a group in need
- Religious organizations or places of worship (synagogues, churches, mosques, temples, etc.) if the church in question operates solely for both religious and educational purposes
- Federal, state, and local governments (including Indian Tribal Governments)
- Recreation facilities and public parks
- War veterans' groups
- Service organizations such as United Way, Boy Scouts, Girl Scouts, Boys and Girls Clubs of America, CARE, Red Cross, Salvation Army, etc.
- Organizations dedicated to preventing cruelty to children or animals
- Organizations established to promote literacy
- Scientific organizations
- Other organizations listed in the Internal Revenue Services' online Exempt Organizations Select Check tool (see below).
Before you make your donation, you may want to check with the organization to make sure they are qualified to receive tax deductible donations. You can use the IRS Tax Exempt Organization Search tool to find qualified exempt charitable organizations or organizations with a revoked federal tax-exempt status. Some organizations which may not be listed in the IRS search tool include smaller churches covered under large group exemptions, religious organizations and public charities with annual gross receipts of $5,000 or less, subsidiaries and affiliates of entities listed in the tool, and formally recognized Indian Tribal Governments. You may want to double check the qualified status of smaller charitable organizations before you donate. Many organizations lose their tax-exempt status because they do not file the required documents for three consecutive years. Donations to these organizations are no longer qualified as tax deductible. The IRS keeps an updated list of status revoked organizations on their website.
Organizations that are NOT Qualified as Charitable
You may have made certain donations during the tax year and wonder if you can write them off (or deduct them) on your taxes. For example, is giving to a GoFundMe tax deductible? Unfortunately, not usually; donation platforms like this treat payments as gifts as they are personal donations. However, some organizations on GoFundMe are charity fundraisers which may be tax deductible. The partners of these organization will issue tax receipts.
Donations to the following types of organizations are generally not tax deductible:
- For-profit institutions
- Individuals
- Lobbying groups
- Labor unions
- Chambers of commerce
- Civic leagues
- Sports and social clubs
- Most foreign organizations
- Homeowners’ associations
- Tuition
- Value of donated blood
- Political candidates or organizations
- Foreign or unrecognized governments.
Transportation Costs and Other Charitable Expenses
You might be able to claim the following expenses as a tax deduction for charity purposes:
- Transportation Expenses: You may also generally deduct the costs of transportation, including using your car to travel to and from the location where you are performing the charitable services. Learn more about travel deductions and mileage rates.
- Out-of-Pocket Expenses: You may generally deduct any unreimbursed, out-of-pocket expenses incurred while serving with a qualified charitable organization (see above) as a volunteer if the expenses are directly related to the services being performed.
- Expenses for Housing Students: You may generally deduct any expenses incurred for housing a student sponsored by a qualified charitable organization.
Restrictions for Charity Deduction
There are restrictions on charitable contributions that relate to documentation and contribution limits. You should keep records of any donations you make, just in case of an IRS audit. The IRS requires you to keep a record of any cash contribution, such as a canceled check, bank statement, credit card statement, or written statement from the charity showing the date of the contribution, the amount of the contribution, and the name of the charitable organization.
If you have made donations by text message, a phone bill will serve as a record of the contribution as long as the bill states the amount, the date on which the contribution was made, and the name of the organization to which you donated.
If the value of a single donation exceeds $250, you must acquire written acknowledgment from the qualified organization. Each contribution counts as a separate itemized deduction.
If your total deduction for non-cash contributions exceeds $500, you must fill out Form 8283, Section A which eFile.com will do for you. If your contribution of non-cash property exceeds $5,000, you may be required to obtain a third-party appraisal of the value. If that is the case, you will also have to fill out Form 8283, Section B - eFileIT. Remember that eFile.com will generate the correct forms for you during your online tax preparation process.
Learn more about the documentation requirements for charitable contributions in Publication 1771 - Charitable Contributions: Substantiation and Disclosure Requirements.
Limits on Charitable Contribution Deductions:
- If you receive some sort of compensation for your donation (such as tickets to a charity ball, a theatrical performance, a sporting event, or merchandise, goods, or services), you can only deduct the amount of the donation that exceeds the fair-market-value of what you received.
- You cannot deduct the cost of raffle, bingo, or lottery tickets purchased from a charitable organization.
- You cannot deduct the value of your donated time or professional services, or the value of donated blood.
- If you make a pledge to donate a certain amount, you can only deduct the amount actually donated during the year.
- If you make a donation by credit card or check near the end of the year, you should still include it on your tax return in the year it was made, even if you do not pay off or balance the account until after the end of the year.
You can only deduct up to 60% of your adjusted gross income in charitable contributions. For appreciated assets (including long-term appreciated stocks or property generally deductible at fair market value) your deduction should not exceed 30% of your adjusted gross income. If your contributions exceed your limits, you may carry over the charitable deductions for a period of up to five years.
Other Tax-Deductible Contributions
There are a few other less-common contributions you can make which may be tax deductible on your next return.
- You can also claim tax deductions on appreciated stocks and contributions to organizations who provide disaster relief.
- Cash and property are not the only things you can donate to charity for a tax benefit. Donations of appreciated stock can provide you with excellent tax savings. You can donate any stock that has risen in value, as long as you have owned it for over a year, and avoid any capital gains tax. If you sold the appreciated stock for cash, you would have to pay tax on the amount of appreciation. If you donate appreciated stock, you can deduct 100% of the value on your tax return.
- Contributions to organizations which provide overseas disaster relief are tax deductible as long as the group in question is based in the U.S. and has full control over the distribution of donated funds. Before contributing, check to make sure the charitable organization is qualified and be sure to keep a record of the donation. More information about providing charitable donations to disaster relief efforts can be found in IRS Publication 3833 - Disaster Relief.
How To Deduct Charitable Contributions
You must itemize deductions in order to claim a donation made to a qualified organization on your tax return. When you prepare your tax return on eFile.com, we will generate the correct form(s) to use in order to claim your charitable donations based on your answers during the tax interview questions. Schedule A will be generated by the eFile app and this form will be e-filed with your Form 1040 and other applicable tax forms.
Make your contributions during the tax year and keep organized records of the amounts you donated, what you donated if not cash, and to whom you donated. Hang onto receipts and other records so you have exact figures to work with when you file your taxes.
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