Are Charitable Donations Tax Deductible?
Charitable donations and contributions that are tax-deductible include money and goods given to tax-exempt organizations and charities such as a 501(c)(3) organization. In the United States, it’s possible to deduct charitable donations of all sorts from your taxes for the year. This tax deduction is meant to encourage giving by reducing your taxable income.
If you plan on using your donation as a tax deduction it is important that you keep your paperwork and receipts organized, as you will need to itemize on your charitable contribution.
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How Much Can I Deduct?
However, there may be limitations depending on the type of contribution and the organization your donation is received by. Some charitable donations may limit your deduction to 20% or 30% of your AGI, depending on the types of contributions.
These limits typically apply when you’re donating to private foundations, veterans organizations, fraternal societies, and cemetery organizations. The limit will apply to all donations made throughout the year, not just to the specific organizations you may have chosen to donate to. A few important notes include:
- Charitable contributions or donations that exceed the deduction limit can typically partake in a tax-deduction carryover process for a period of five years, or until the deduction is gone.
- The CARES Act COVID-19 Relief Strategy allows for $300 of above-the-line — without having to itemize — charitable donation deductions.
Qualified Organizations for Charitable Contribution Deductions
Organizations that can receive tax-deductible donations and contributions are generally qualified under section 170(c) of the Internal Revenue Code. Many organizations can be nonprofits without 501(c)(3) status, so it is important to verify an organization’s status before making a donation. You may also ask the organization what percentage of your donation will be tax-deductible.
How to Claim Tax Deductions for Donations
If you plan on donating, you’ll want to make sure that you get every tax deduction that you’ve earned. In order to do that, here’s what you need to do to claim all of your tax deductions for charitable contributions:
- Itemize your tax deduction. You can only claim charitable donations on your taxes if you itemize your deduction. This will mean opting out of the standard deduction, so be sure to crunch the numbers on your taxes before you make this decision. Depending on how much you’ve donated and how much you’re getting in other tax deductions for the year, it may end up being better for you just to take the standard deduction.
- Record every donation that you make. Tax deductions for charitable contributions are only good if you can prove that you made them. This is where it’s important that you have some kind of record of your donation. One great way to do this is to donate with your credit card. This way you can use your credit card statements as a record of every donation that you made.
- Donate to 501(c)(3) charities. If a charitable organization carries the 501(c)(3) designation, that means that the IRS has examined its financials and deemed them an appropriate organization to receive tax-deductible contributions. You can only claim tax deductions for donations made to 501(c)(3) organizations. In addition, watching for this status will help you decide who you should donate to — donating to these charities will help you to avoid charity scams during the holiday season.
Claiming Tax Deductions for Non-Cash Donations
There are other ways to give besides donating money. If you’re donating without much cash or donating food instead of money, you can still claim these charitable donations on your taxes. For any non-monetary donation, you can count the fair market value of that donation towards your tax deduction for the year.
- Track non-monetary donations carefully. Here’s another place where using your credit card to donate can be a good idea — if you forget how much you paid for a donated item, you can always go back and check your credit card statement to see how much you paid. You should also take pictures of what you donate. This will help you remember the quantity of each type of item you donated and, if you donated used items, what condition those were in, and how much they might have been worth. If possible, get a written record of whatever you’re donating from whoever is collecting.
- Account for the value of what you donate. If you intend to claim over $250 in donations on your taxes, the IRS will require that you have written proof of receipt from the agency that you donated to. If you claim over $500 then you need to fill out IRS Form 8283, tallying up your non-monetary donations for the year. Finally, if you donate an item worth more than $5,000, the IRS will require an appraisal of the item from a qualified professional.
- Don’t forget about mileage. Many people don’t think about this when it comes time to file taxes, but you can also claim miles driven for charitable purposes as a tax deduction. If you’re volunteering your time to drive around for a 501(c)(3) organization, keep track of how many miles you travel. When it’s time to file your taxes, you can claim the standard mileage rate as a tax deduction. The 2020 standard mileage rate is 14 cents per mile driven for charitable organizations.
- Expenses related to volunteering can be tax-deductible. You may not be able to deduct the value of your time, but if you incurred expenses related to your volunteer work with a qualified organization, you can deduct those expenses as tax-deductible donations. These expenses must be directly connected with your volunteer work, and may not have been previously reimbursed.
If you plan on claiming your charitable donations on your taxes this year, make sure that you record all of your donations carefully. Donate to certified charities and don’t forget to account for items that you donate that aren’t cash.
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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.