If you donate to charity, you can support some of your favorite causes and contribute to making the world a better place. In addition, you can enjoy a side benefit: Qualified donations to charity are tax-deductible. They can reduce your taxable income amount and, therefore, cut down on your final tax bill. To claim your charitable donations tax refunds, you must opt to itemize your deductions, which can be a pain. Many people opt to skip this step and go with the standard deduction to save time. If you exceed the standard deduction by itemizing, however, it may be a better choice to itemize and maximize your tax refund. Let’s take a closer look at charitable donations taxation.
Rules of Charitable Donation Taxes
You can report your tax deductions for charitable giving on Schedule A of your Form 1040. From there, you can transfer the total from your Schedule A to line 8 of the version of Form 1040 that was introduced in 2018 for individual tax returns.
Schedule A is where you document all of your itemized deductions if you opt to itemize rather than using the standard deduction. They are mutually exclusive, so you must choose either the standard deduction or the itemized deduction. You cannot choose to use both. Schedule A is used to track all of your itemized deductions, including medical expenses, mortgage interest and some types of insurance premiums.
There are rules and guidelines for claiming a charity tax deduction. Here are some of the most important to keep in mind:
- Your donation must have been completed. You cannot claim a tax deduction for a pledge; you must have donated actual cash or property during the tax year.
- Your donation must go to a tax-exempt, qualified organization. If you make a donation, check to make sure that your recipient has 501(c)(3) tax status. Religious organizations are not required to seek this status; they can still count as legitimate, qualified charities. The IRS has a search function to help you find out whether your charitable donation is tax-deductible.
- You must keep records. You’ll need to have canceled checks, a receipt or an appraisal that documents the value of property given to a qualified charity.
Keeping Your Charitable Tax Records
When you donate to a charitable organization, it is very important to keep records of everything involved. Things you should keep track of include:
- All receipts and acknowledgment letters
- Name of the charity
- Amount of your contribution
- Date of donation
Cancelled checks can serve as a form of receipt on their own, as they contain all of this information. Many people mainly donate online or through a bank transfer, so bank statements can also support your documentation.
If your donation is greater than $250, you must have a separate acknowledgment from each charity. If you made donations greater than $250 multiple times during the year to one organization, the acknowledgment letter should detail each individual contribution. If you do not have this type of letter, the IRS may disallow your charitable donation deduction.
Non-Cash Item Donations
If you are donating goods or property to a charity rather than cash, you will need to substantiate their fair market value to claim a tax deduction. This kind of gift also requires a written letter of acknowledgment from the charity. IRS Form 8283 is used to document non-cash donations, and it should be included with your tax returns.
Here are some things to keep in mind when claiming a charity donation tax deduction for non-cash items:
- Set a value for the item based on the condition: The IRS allows deductions for items that are at least in good working condition. You cannot claim a deduction for non-functional items. There may be some exceptions, such as valuable antiques, but they should be properly valued in their current condition. You can use online valuation guides provided by major charities like Goodwill to value your items or check the price tag or receipt for newer items.
- List the specific items being donated, including their condition. This information must be included in your Form 8283.
- Document your donations. Taking a picture or a video of the item you give away can help to document your charitable donation in case of a tax audit.
- Get an appraisal for valuable items. If you are donating valuable art, electronics or vehicles worth more than $5,000, you will need an official written appraisal. These donations can be added to Section B of Form 8283.
Limits on the Charitable Contribution Deduction
In most cases, you can deduct your charitable contributions up to 30% or 60% of your adjusted gross income each year. Before 2017, you could donate up to 50% of your AGI and receive a deduction. It was increased to 60% with tax reforms passed in 2017, although it may revert to 50% in 2025. The 30% or 60% threshold is based on the nature of the charity and its tax-exempt status.
If you give more than this amount, you can carry over your excess donations to a later year to claim your charity donation tax deduction. They can be carried over for up to five years.
Beginning in 2018, there is no annual gross income cap on your itemized deductions. If you are filing tax returns from prior years, you will need to keep the pre-2018 rules in mind.
What’s Not Deductible for Charitable Taxes
Some types of charitable contributions are not deductible. These include:
- Gifts given to individuals
- Donations to associations like chambers of commerce, labor unions or business trade organizations
- Donations to for-profit medical or educational institutions
- Donations to governments of foreign countries
- Donations to political parties or campaigns
Charitable giving offers many opportunities to make a difference in the world and to claim an itemized charity tax deduction.
If you’ve donated to charity and want to make the most of it on your tax return, contact Picnic Tax. Our qualified accountants are skilled in handling complex tax returns, including those with itemized deductions. Because your tax return is handled by an accountant, you’ll have a human, professional touch looking for every bit of tax savings. At the same time, you can complete your tax return in just minutes online. Contact Picnic Tax today by clicking here.