01How Does the Income Tax Deduction for a Charitable Donation Work?
You must itemize deductions on your tax return, and donate to a qualified charitable organization. That means that the charity must be a tax-exempt 501c3 organization.
When a taxpayer does take a charitable deduction, the savings go up as one's tax bracket increases. The wealthier one is, the more advantageous is charitable giving.
02When Can a Charitable Contribution Deduction be Taken?
Your donation to a qualified charity is deductible the same year in which it is made. The contribution is considered paid when you put the check in the mail, or when it is charged to your credit card (not when you pay the credit card company). Make sure that your donation is made by December 31 of the year in which you plan to claim a deduction.
Many charitable organizations qualify for tax-deductible donations, but not all. Look for the 501(c)(3) designation to be sure.
The charity will tell you if your donation is tax deductible, plus you can search for it at the IRS website.
Here are the types of organizations where you can usually take a tax deduction for your contribution:
- Churches and other religious organizations
- Tax-exempt educational organizations
- Tax-exempt hospitals and some medical research organizations
- Government agencies such as a state or division of a state
- Organizations (aka federated funds), such as a community chest, that are supported by the public
- Some private foundations that distribute the contributions they receive to public charities, and some private operating foundations
- Some membership organizations that receive more than a third of their contributions from the general public
Charitable tax deductions are not allowed for contributions to an individual, a foreign government, international charities, political parties, political campaigns, social welfare organizations, commonly known as 501(c)(4), or political action committees.
We are all concerned about good causes abroad, and most of us do want to give globally. But what are the implications for your charitable tax deduction?
If the charity is registered in the U.S. as a charity, you can take a deduction for your donation. If the charity is not registered, there is no tax deduction. Many, many nonprofits that are registered in the U.S. provide international aid, especially for disaster relief.
05How Do I Handle Deductions for Non-Cash Donations to a Charity?
With the standard deduction now so high, it is doubtful that non-cash donations such as clothing and household furnishings would merit a tax deduction for individuals.
In any case, there are rules for non-cash donations such as property or old clothing, household furnishings, or office equipment.
For property owned for more than a year, the deduction is usually equal to the property's fair market value.
Donated clothing and household items must be in "good condition or better," according to the IRS. You must have a receipt for the goods from the charity to claim a deduction. You cannot take a deduction for items you throw into a bin.
You may need a qualified appraisal if you donate an item or a group of items for which you deducted more than $500.
Making a car donation to a worthy charity seems like a good move, but, unfortunately, car donation is an area of charity that is rife with fraud and misleading information.
To receive a deduction for the donation of a car, truck, boat, airplane or any other vehicle, the item must be worth more than $500. Plus, you must have a written acknowledgment from the charity.
Check out our suggestions for a happy outcome for you, the charity, and your car.
07Can I Take a Deduction for My Volunteer Work?
No, you can't deduct the value of your time spent on charitable work as a charitable donation, but you can deduct your out-of-pocket expenses such as mileage, currently set at 14 cents per mile. Other possible deductions for costs include your travel to volunteer abroad or even in another state.
For the average person, deductible expenses for volunteering are not likely to exceed the new standard deduction.
08What Documentation Is Required for Deductions for Charitable Contributions?
To claim a deduction for cash, check, or another monetary gift, you must have written confirmation from the charity.
The confirmation must contain the name of the organization, the date of the contribution and amount of the gift. Charities are only required to provide written acknowledgment for donations over $250, but most do offer some receipt no matter what size of contribution you provide.
For contributions less than $250, if a receipt has not been provided, a canceled check or a bank record will suffice. You cannot deduct casual donations that you drop into a charity's collection box or bucket without a receipt.
If you receive some goods or services in exchange for your donation, the charity must specify the value of those goods or services. You can only deduct the amount of your donation that is above that value. The paperwork from the charitable organization should spell out what is deductible.
If you text a donation to any charity, use your phone bill as your receipt. It should list the date, amount donated and the name of the charity. When you text-to-give to a charitable organization, the nonprofit does not receive information about who you are. You are anonymous. Therefore, you won't receive a receipt from that charity. The charge for the donation appears on your phone bill.
10Is the Pledge I Made on a Crowdfunding Site Tax Deductible?
There are many crowdfunding websites now. Some, like Kickstarter, are primarily for raising money for a business, product or project, although nonprofits are not excluded.
Only qualified nonprofits that fundraise on these sites can provide a tax deduction.
Look for some verification of the tax status of the organization that is raising funds. Obviously, if the campaign is for an individual, business, or product, there would be no charitable tax deduction.
This article is just for informational purposes. It is not intended to be legal advice. Check other sources, such as the IRS, and consult with legal counsel or an accountant.
What You Need to Know About Tax Deductions for Charitable Donations
Charitable tax deductions go hand in hand with the "standard deduction." In order to receive a charitable tax deduction we have always needed to itemize our deductions and have enough deductions to exceed the standard deduction.
Under the Tax Cuts and Jobs Act, that standard deduction has gone way up. For example, it is now $24,000 for a married couple filing jointly. Plus add another $1250 if age 65 or older. For a single person, the standard deduction amounts to $12,000 plus $1550 for those over 65.
Although the charitable tax deduction has been preserved in the new law, for the average charitable donor, it may not be that advantageous to itemize.
There are a few ways still to find a tax advantage for charitable giving, however.
One method has to do with an IRA (individual retirement account) and only if one is 70-1/2. Ask your IRA custodian to transfer money directly from your account to an eligible charity. That action, called a qualified charitable distribution (QCD), won't result in a deduction but may lower your adjusted gross Income resulting in a lower tax bill. Work with your financial adviser to make sure this works for you and to understand all the fine points, including how it affects your required minimum distribution (RMD) and any limits on how much you can transfer.
Another possibility would be to channel your charitable donations through a donor-advised fund. Such funds can be set up very easily with many banks, brokers or community foundations and for as little as $5000. By bunching your contributions for several years into one year (thus clearing the hurdle of the standard deduction), you may be able to take a tax deduction the year you give the money to your account. You can then distribute the funds to charities over time.
If you can make a deductible donation to charity, either by giving a significant amount and having enough other deductions to itemize or through one of these other methods, below are some things to keep in mind.