The Basics of Tax Deductions for Charitable Donations
The tax year of 2018 was a momentous one for charitable givers and the charities to which they donate. That is because, in 2017, Congress passed the Tax Cuts and Jobs Act (TCJA). That Act made charitable donations less likely to qualify as an itemized deduction by doubling the standard deduction.
You can't both itemize and claim the standard deduction for your filing status, so many people may be better off not claiming a deduction for charitable contributions. The total of all itemized deductions would have to exceed the standard deduction to make that option worthwhile.
Whether you itemize or not depends on how well you understand the rules and some limitations imposed by the IRS. For most taxpayers, their tax accountant or the tax software they use will be able to determine the best way to go.
The Effect of the 2018 Tax Law
The main effect of the new tax law on individuals and their charitable contributions is that you cannot claim the standard deduction and then itemize charitable donations.
As of 2019, the standard deduction is $24,400 for a married couple filing jointly, $12,200 for .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 such as mortgage interest, state and local property taxes, and medical expenses, subject to certain limitations.
For instance, 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 claiming them rather than the standard deduction—the difference between your total itemized deduction and the $12,200 standard deduction that's available to you.
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.
Remember that each year the standard deduction goes up to keep pace with inflation.
Whether you end up itemizing your charitable deductions or not, keep in mind that not all charitable donations qualify for a deduction. Read on for some of the limitations to watch for.
You 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 IRS. 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
Limits on How Much You Can Deduct
The IRS also limits how much of your generosity you can claim as an itemized tax deduction. As of 2019, you're limited to 60% 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.
You can find your AGI on line 8b of the 2019 Form 1040.
But the rules change if you gifted appreciated tangible assets that you've owned for longer than a year. In this case, you can only claim a deduction for 30% of the asset's current fair market value.
The 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.
If you give an item or a group of related items with a value of more than $5,000, you must get an appraisal and attach Section B of Form 8283 to your tax return.
When 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. For instance, If you make your donation on or before the last day of 2019, you can claim the deduction on the tax return you file in 2020 for your 2019 income.
You can take a deduction for your donation if the charity is registered in the U.S. Except for a very few exceptions, there's no tax deduction for foreign entities.
Can I Take a Deduction for My Volunteer Work?
You cannot deduct the value of your time for volunteer work, but you can deduct your out-of-pocket expenses. This includes mileage, currently set at 14 cents per mile in 2019.
Other possible deductions for costs include your travel to volunteer abroad or even in another state.
Is 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 projects, although nonprofits are not excluded. Some crowdfunding sites 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.
How 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 IRS 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. However, 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.