Picnic’s Tax Blog

Are Charity Donations Tax Deductible? A Tax Guide For Giving

Are Charity Donations Tax Deductible? A Tax Guide For Giving
Ryan McInnis
donation website

Making charitable donations is a great way to help others and maybe reduce your tax bill a little at the same time. As is true with most tax-related activities, however, there is a right way and several wrong ways to go about claiming your charitable contributions at tax time. To make sure your gift benefits both its intended recipients and your tax picture, it’s important to understand the rules.

Making charitable donations is a great way to help others and maybe reduce your tax bill a little at the same time. As is true with most tax-related activities, however, there is a right way and several wrong ways to go about claiming your charitable contributions at tax time. To make sure your gift benefits both its intended recipients and your tax picture, it’s important to understand the rules.

How Much Can I Deduct?

The IRS allows tax deductions to help encourage charitable giving, but there is a donation tax deduction limit. Generally, you can deduct up to 60 percent of your adjusted gross income. In a few cases, however, the IRS may limit you to 20, 30, or 50 percent. Contributions made to fraternal societies and cemetery organizations, for instance, are subject to a lower limit.

In order to take the charitable contribution deduction, you generally have to itemize your deductions. The IRS allows taxpayers to deduct up to $300 in cash contributions per tax return without doing so, however. Even though you need not itemize up to $300, you should still make sure you have the documentation needed to back up your deduction if asked.

Temporary Suspension of Limits on Charitable Contributions

Under the CARES Act, certain restrictions and limits on charitable contributions were temporarily lifted. Ordinarily, taxpayers can deduct up to $300 in cash contributions per tax return without itemizing. Under CARES, you can now deduct up to $300 per taxpayer. This means married couples can temporarily deduct $600 without itemizing rather than $300.

CARES also temporarily lifted the 60 percent charitable deduction limit. Normally you may deduct charitable donations that amount to 60 percent of your adjusted gross income. Under CARES, cash contributions are not subject to this limit. For the moment, you can deduct cash contributions up to 100 percent of your adjusted gross income.

Remember that the CARES Act offers this tax break temporarily. If Congress fails to extend the act or pass a more permanent law change, the old deduction limits may go back into effect at any time. Check with your accountant before assuming the 100 percent limit is still in place. Remember too that this temporary contribution limit applies only when donating to public organizations.

What are Qualified Organizations?

501 c3

The IRS doesn’t allow you to take a charitable donation deduction for every and any organization you make a contribution to. In order to count your donation as a deduction, you must make sure you’re donating to a qualified organization. In most cases, a qualified organization is one that is tax-exempt under section 501(c)(3) of the Internal Revenue Code. Think churches, the Red Cross, museums, public parks, and volunteer fire departments.

Although all 501(c)(3) organizations are qualified organizations, not all qualified organizations are 501(c)(3)s. Fortunately, the IRS maintains an IRS Exempt Organizations Select Check Tool. Here you can look up any charity you wish to donate to and verify that your donation will go to a qualified agency and count as a deduction for you.

Charitable Donations You Cannot Claim!

Not every nonprofit organization is a qualified organization and not every donation you make is a tax exemption. Taxpayers often have a few misconceptions about what counts as a charitable donation at tax time. One of the biggest is political donations. Donations made to any political organization, party, or candidate are absolutely not tax-deductible. The same is true of civic agencies such as sports groups or employee associations.

Any charitable gift for which you receive something in return is also disallowed as a charitable donation. If you donate $15 to your church and in return you got a music CD of the choir, you did not make a donation but a purchase. The same is true if you bought a raffle ticket, paid to play bingo, or purchased a ticket to the fire department’s chicken and waffle dinner. Even if you bought these items in an effort to raise money for a nonprofit organization, they don’t count as charitable donations because you received something in return.

The exception is if you received something with a fair market value below your payment.
Let’s return to the church example, in which you “donated” $15 and got a music CD in return. If the fair market value of the CD is only $5, then you did make a donation of $10. You cannot count the money for the CD, however. This is a very important caveat that frequently gets taxpayers into trouble. If you receive anything other than a thank you for your donation, it probably isn’t a donation at all in the eyes of the IRS.

Non-Cash Charitable Contributions & Form 8283

If you donated more than $500 worth of noncash items, you need to file an IRS Form 8283 along with your tax return and itemized deductions (Schedule A). This form will ask you for information about the type of asset you donated and how you acquired it. You may need to have some specific information about the item you donated, so keep good records.

You won’t need to give a lot of information if you donated an old sofa or some clothing. Other assets, however, invite a few more questions. If you donate a car, for example, Form 8283 will ask you for the VIN. The form is not a complicated one, but there is a section on it that you may need the donee to sign. Some items require the signature of an appraiser, as well. You’ll make life much easier if you plan ahead and have the form signed at the time of your donation or appraisal, if necessary.

Common Estimated Donation Values

charity tax deductions

When making non cash donations, the value of your donation equals its current fair market value. Large ticket or rare items may be hard to value and could require the help (and Form 8283 signature) of an independent appraiser. If you’re claiming that the donated object is worth more than $5,000, note that you must have an appraiser sign-off on your tax form.

When placing value on an item yourself, pricing guides like the Kelly Blue Book for automobiles can also prove helpful. Goodwill maintains a list of estimated donation values of household items like clothing, cookware, and furniture as well. Always ask for a receipt when making a donation, too. This allows you to prove that you made the donation and helps assign a dollar value to it. If, for example, you and the charity both agree that the laptop you donated is likely worth $150, getting a receipt for the donation amount makes tax time much easier.

Remember to Volunteer

Perhaps you choose to give of your time rather than making cash donations or giving away physical items. If so, remember that giving of your time absolutely counts as a charitable donation. As such you can deduct any expenses you incur as a direct result of performing volunteer work.

For example, say you serve food at a soup kitchen twice a week. You can deduct the amount of gas you use to drive to the kitchen. Use your car to deliver for Meals on Wheels? You can deduct your mileage for that, too. You may choose to keep your receipts and deduct actual expenses or use the IRS-established mileage rate for the current tax year.

Get More Tax Savings From Your Generosity

Giving is certainly not about getting, but there is no reason to short-change yourself when making a sizable donation. You and your chosen charity can both get a bit of a boost from your generosity, and Picnic Tax is here to help you make sure you get as much benefit as you can from your charitable contributions. If you’ve already donated, we can help you review your paperwork and file your return properly. If you haven’t donated yet, we’ll help you decide the best way to do so for all involved. Reach out to us today and we can start doing good works together.