01The Effect of the 2018 Tax Law
Charitable donations dropped by more than 6 percent in the first three months of 2018, according to the Fundraising Effectiveness Project. That's because the standard deduction went way up under the Tax Cuts and Jobs Act (TCJA), which was signed into law in December 2017 and became effective Jan. 1. Remember, you can't claim this new and improved standard deduction and itemize, too.
As of 2019, the standard deduction is $24,400 for a married couple filing jointly, $12,200 for single taxpayers, and $18,350 if you qualify as head of household. The total of all your itemized deductions—including the one for charitable giving—would have to exceed these amounts before itemizing would make any financial sense. Available itemized deductions include things like mortgage interest, state and local property taxes, and medical expenses, subject to certain limitations.
If you're single and all your itemized deductions tally up to $10,000 for the year, you'd end up paying taxes on $2,200 more in income than you have to if claim them rather than the standard deduction—the difference between your total itemized deduction and the $12,200 standard deduction that's available to you.
That said, your standard deduction is carved in Internal Revenue Code (IRC) stone, although it increases to keep pace with inflation from year to year. Still, you're stuck with whatever the Internal Revenue Code says it is. You do have a choice as to how much you spend on qualifying itemized deductions, however, so you might get over that $12,200 threshold if you're particularly generous with your charitable donations.
Unfortunately, you might not be able to deduct all your gifts and donations.
02You Must Give to a Qualified Charity
First, you must donate to a qualified charitable organization to claim this itemized deduction. If you give to anyone or anything else, your generosity doesn't count.
The charity you give to must be a tax-exempt 501(c)(3) organization or fall under Section 170(c) of the IRC. You can take a tax deduction for contributions you make to:
- Churches and other religious organizations that are covered under Section 170(c)
- Organizations including the American Red Cross, Goodwill, the Salvation Army and CARE
- Tax-exempt educational organizations
- Tax-exempt hospitals and some medical research organizations
- Government agencies, such as a state or division of a state if the funds are used for public purposes
- Nonprofit volunteer fire companies
- Some veterans' groups and fraternal societies
- Organizations such as federated funds that act as a community chest and 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
- Boy Scouts and Girl Scouts of America
- Boys Clubs and Girls Clubs of America
A good many charitable organizations qualify for tax-deductible donations, but not all, so you'll want to be sure your chosen charity qualifies. Look for the 501(c)(3) designation after its name to be sure, or search for it in the IRS online database of all acceptable charities.
Charitable tax deductions are not allowed for contributions made to individuals, chambers of commerce, or labor unions.
03Limits on How Much You Can Deduct
The IRC also limits how much of your generosity you can claim as an itemized tax deduction. As of 2019, you're limited to 60 percent of your adjusted gross income (AGI) on most donations made to public charities and certain private foundations. This is up from 50 percent in 2017. The TCJA changed this threshold as well.
You can find your AGI on line 37 of your 2017 Form 1040, or on line 7 of the new 2018 Form 1040. If it's $80,000, your deduction is limited to $48,000, or 60 percent of your AGI—so that $10,000 you gave would be fully deductible.
But the rules change if you gift appreciated tangible assets that you've owned for longer than a year. In this case, you can only claim a deduction for 30 percent of the asset's current fair market value. That $48,000 limit just dropped to $24,000 for these gifts. This rule applies to gifts made to veterans' organizations, fraternal societies, and some private foundations as well.
Gifts of capital gain property are limited to just 20 percent.
04The IRS Definition of Fair Market Value
The IRS defines fair market value as what an asset or item of property would sell for if neither the buyer nor the seller was under any pressure to complete the sale. In other words, the buyer wouldn't pay an exorbitant price because he desperately needs the item, and the seller wouldn't give it away for a pittance because she desperately needs the cash.
If you give household goods or clothing, it must be in good condition.
And there's one more wrinkle: If you receive anything in exchange for your gift—maybe a television is being auctioned off for charity and you bid top dollar—you must deduct the fair market value of whatever you received from what you paid. If the television is worth $600 but you paid $1,000, you're limited to a $400 deduction because you received something in return.
05When Can You Take a Charitable Contribution Deduction?
Your donation to a qualified charity is deductible the same year in which it's 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 Dec. 31 of the year in which you plan to claim a deduction. If you do so on or before the last day of 2018, you can claim the deduction on the tax return you file in 2019 for your 2018 income.
You can take a deduction for your donation if the charity is registered in the U.S. There's no tax deduction for foreign entities.
But keep in mind that many U.S.-registered nonprofits provide international aid, especially for disaster relief. Some might have foreign addresses in the searchable IRS database, but they're domestically formed so they're OK.
07Can I Take a Deduction for My Volunteer Work?
08Is the Pledge I Made on a Crowdfunding Site Tax Deductible?
There are many crowdfunding websites now. Some, like Kickstarter, primarily raise money for businesses, products, or project, although nonprofits are not excluded. Some crowdfunding sites such as Crowdrise or Generosity by IndieGoGo feature both nonprofit campaigns and individuals who raise money for another person.
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's raising funds. Search for it in the IRS database. But if the campaign is for an individual, a business, or a product, there would be no charitable tax deduction.
09How to Claim a Charitable Donation Deduction
You must have written confirmation from the charity to claim a deduction for cash, a check, or another monetary gift. The confirmation must include the name of the organization, the date you made the contribution, and the amount of the gift. It must also state the value of anything you received in exchange.
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. You can always ask for one.
The IRC says that contributions of less than $250 can be substantiated by a canceled check or a bank record if a receipt hasn't been provided. You can't deduct cash donations that you drop into a charity's collection box or bucket without getting a receipt—there's no proof that you did so and the IRS won't take your word for it.
You must file IRS Form 8283 with your tax return if you claim more than a $500 non-cash donation. Complete Section 1 if the item's value was between $501 and $5,000. The charity must complete Part IV of Section B if it was worth $5,001 or more. In this case, you'll also need an appraisal to confirm the value of your gift. You only have to submit the appraisal with your tax return, however, if your gift was worth more than $500,000.
Tax Deductions for Charitable Donations
The IRS might limit the amount of your deduction
The tax deduction for charitable donations is an itemized deduction, so you have a choice to make. You can't both itemize and claim the standard deduction for your filing status as well, so you might be better off not claiming a deduction for your generosity. You could end up paying taxes on more income than you have to if you do...or not.
It depends on how well you understand the rules and some limitations imposed by the IRS.