How do charitable donations work on my tax return?

If you’re giving to charity, you’ll want to know how to record it on your taxes.

Charitable contribution deductions might be the most well-known tax write offs. You give to a good cause, and it helps you out on taxes.

But how does that actually work?


Quick look: What is a tax deduction anyway?

Tax deductions don’t directly reduce your tax liability. Instead, they reduce the income figure used to calculate what you owe in taxes. If you earn $75,000 and qualify for $15,000 of deductions, that means you’re taxed as if you made $60,000 instead.

What are the rules of charitable contribution deductions?

The IRS is pretty strict about writing off donations to charity. There are rules about which kinds of organizations you can donate to, how much you can deduct, and how to classify different kinds of donations.

What kind of donations qualify?

In most situations, to qualify for the charitable contribution deduction you’ll need to make sure the donation was to a 501(c)(3). These are tax-exempt organizations created specifically for religious, charitable, scientific, literary, or educational purposes. Other organizations that can qualify for 501(c)(3) status include groups that advocate for public safety or develop amateur sports.

What kind of donations don’t qualify?

Donations to any kind of political advocacy groups – labor unions, political party dues, political candidates, chambers of commerce, you name it – do not qualify for tax deductions. Also excluded are organizations like country clubs or homeowner’s associations.

Foreign organizations are typically excluded, although certain groups from Canada, Mexico, and Israel make it through.

One important point to remember: no donations to individuals qualify, not even donations to qualified organizations earmarked for a specific person.

How much can I deduct?

It depends! Several factors influence the total deduction you’re allowed to take, including your income, the type of donation you’re making, and the type of charity you’re donating to.

  • Most public charities are known as 50 percent organizations, meaning you can claim deductions up to 50% of your adjusted gross income (AGI) for cash donations made to these groups.
  • Organizations like private charities, veterans’ groups, fraternal organizations, private family foundations have a 30% AGI limit on charitable contribution deductions
  • Donations of long-term appreciated assets (bonds, stocks, real estate, etc.) allow you to claim deductions to your capital gains tax, limited to 30% of your AGI if donated to a public charity or 20% of your AGI if donated to a private group
  • Your total limit for all charitable contribution deductions combined is 50% of your AGI no matter what. It doesn’t stack between different sources
  • If you donate more than the limit, you can roll the difference into next year for up to 5 years. But the carryover from previous years can only be considered AFTER the contributions from the current year

How do I claim deductions for charitable contributions?

Like any tax deduction, you’ll be using Form 1040 – your personal tax return – to claim deductions for charitable contributions. And since charitable contributions are a type of itemized deduction (you can’t take the standard deduction if you plan on writing off donations to charity) you’ll be attaching Schedule A to your 1040 to list the deductions you’re claiming.

⚠️Note: In some previous years, individuals taking the standard
deduction were allowed to add up to $300 worth of charitable donation
deductions. As of 2022, that is no longer the case. Itemized only.

 

Other details

What about non-cash donations?

You can also deduct the value of any physical goods you donate, not just cash. But this is harder to document, and the IRS requires proof that you’ve really donated items of the value you’re claiming.

Below $500 you just need a receipt from the organization receiving the non-cash donation, but values above $500 must be confirmed by a “qualified appraiser.” The IRS is not super specific about what that means, but basically you just need to confirm the value of your donations. This can be done through appraisal by an expert, the price of a similar item listed in a catalog or sale, or some other reasonable source. Then you put all that in a Form 8283 attached to your tax return.

What about volunteering?

Volunteering does actually count as giving to charity in this context, but there are a few rules to keep in mind.

First, you must volunteer for a qualified organization, like the 501(c)(3)s discussed above. If it wouldn’t count for cash donations, it doesn’t count for volunteering.

You also can’t deduct the value of your time. No claiming $600 for two hours of volunteering just because your professional hourly rate is $300.

What you can deduct: expenses. Mileage and other travel expenses, or incidental expenses like uniforms. Basically, if you spent money on volunteering that expenditure is counted as a donation to charity.

Bottom line

These rules are all intended to limit the use of spurious charitable donation claims to avoid your tax liability, not to prevent people from giving to charity, so they’re pretty easy to follow if you keep a few basics in mind.

Donate to official 501(c)(3)s, don’t deduct more than 50% of your AGI, leave a paper trail for non-cash donations, and you’re on the right track.

Don’t feel like doing all that math? Lucky for you, the tax experts at DiMercurio Advisors are more than happy to take care of it. Schedule a call with a member of our team today.

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