Your charitable giving can benefit you, too, if you take a charitable contribution deduction. By claiming charitable donations as tax deductions on Form 1040, Schedule A, Itemized Deductions, instead of claiming the standard deduction, you could even lower your taxable income.
The IRS website has a tool to help you calculate your standard deduction. Use either the standard deduction amount or the total itemized deductions, whichever results in the lower amount of tax you’d owe.
A New Way to Deduct Charitable Donations
The Tax Cuts and Jobs Act of 2017 removed the limitation on itemized deductions. That means you can deduct as much as legally possible for tax year 2020, same as for 2019 and 2018. Even still, nearly nine out of 10 filers still take the standard deduction, which saw a big increase from the Tax Cuts and Jobs Act. Choosing the standard deduction had always precluded taxpayers from claiming charitable donations as itemized deductions–until now.
The CARES Act created a special new tax law to encourage badly needed charitable giving during the pandemic. The new provision allows filers to deduct cash donations up to $300 made to qualifying charities before Dec. 31, 2020, even if they claimed the standard deduction.
Qualifying Organizations for Charitable Tax Deductions
Donations are eligible for tax write-offs only if you make them to qualified organizations. “An organization has to have received the 501(c)(3) designation from the IRS for it to qualify as a ‘charitable organization’ in terms of deduction donations for tax purposes,” said accountant Eric Nisall, founder of AccountLancer, which provides accounting, tax and consulting services for freelancers. “That means your neighbor’s kid’s Little League team selling raffle tickets isn’t a tax write-off unless the team holds that certification.”
It’s a good idea to check first with the IRS’ Tax Exempt Organizations Search Tool, but generally, charitable gifts to the following types of tax-exempt organizations are tax-deductible donations:
- Churches, synagogues, temples, mosques, and other religious organizations
- Federal, state, and local governments, if your contribution is only for public purposes, such as a gift to reduce the public debt or maintain a public park
- Nonprofit schools and hospitals
- The Salvation Army, American National Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys & Girls Clubs of America, and others
- War veterans’ groups
- A non-profit volunteer fire company
- Expenses you paid for a student living with you who is sponsored by a qualified organization
- Out-of-pocket expenses for serving as a volunteer for a qualified organization
Non-Qualifying Organizations for Charitable Tax Deductions
Many causes deserve your generous gifts. However, donations to these types of organizations don’t count as itemized charitable contributions on your tax return:
- Civic leagues, social and sports clubs, labor unions, and chambers of commerce
- Foreign organizations, except certain Canadian, Israeli, and Mexican charities
- Groups that are run for personal profit
- Groups that lobby for law changes
- Homeowners’ associations
- Political groups or candidates running for public office
- Cost of raffle, bingo, or lottery tickets
- Dues, fees, or bills you paid to country clubs, lodges, fraternal orders or similar groups
- Value of your time or services for volunteering
- Value of blood given to a blood bank
“It’s worth noting that donations to political action committees and groups designated as 501(c)(4) nonprofit organizations are not tax-deductible,” said Kay Bell, author and tax journalist for the blog Don’t Mess With Taxes.
How to Write Off Donations
Before taking a tax write-off for donations, verify the status of the organizations to which you donated. The IRS website has a tool that allows you to search for qualifying organizations by name, location, and employer identification number.
How to Deduct Cash Donations
One common error taxpayers make is claiming the full amount of a donation to a charitable organization from which they receive a tangible benefit.
“Let’s say you went to a silent auction and won a prize that was valued at $1,000, but your winning bid — and therefore your donation — was only $500. You can’t claim a tax deduction because you came out ahead $500,” said Nisall.
“But if you went to a charity dinner and paid $1,000 per plate and the meal was valued at only $500, you get to deduct the difference because you actually paid more than the value you received in exchange for your ‘gift,'” he said.
The total amount of your donations is limited to 20, 30 or 50 percent of your adjusted gross income, depending on the type of organization. In addition, the total amount of your itemized deductions might be limited.
“Cash donations, which, according to the IRS, include gifts made via credit cards and even text messages, are claimed on Schedule A in the section handily identified as ‘Gifts to Charity,'” said Bell. “You just enter the amount you donated. If each gift was less than $250, that’s it.”
“If you’re more generous, however, you’ll need to be sure you get an official acknowledgment document from the charity,” she said. “In fact, you need to get receipts from all nonprofits to which you give. You don’t have to send them with your taxes, but if you don’t have documentation and the IRS questions your charitable deduction, it can automatically deny it,” said Bell.
How to Deduct Noncash Contributions
Instead of money, you might want to donate other items, such as anything from used clothing to real estate. To claim an itemized deduction, write the total value of your donations on Form 1040, Schedule A, Line 12. You’ll need separate acknowledgments for each $250 donation or one showing your total charitable contributions to the same organization. Other requirements apply if your donation is worth more than $250.
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You can claim only the “fair market value” of each item. According to the IRS, fair market value is “what a willing buyer would pay a willing seller when neither has to buy or sell and both are aware of the conditions of the sale.” The IRS doesn’t provide a formula for value determination, so you should consider all of the items’ factors, including desirability and scarcity.
How to Deduct Vehicle Donations
Donating your old set of wheels to a charity can be a bit tricky, but if you do it correctly, you can write it off. For a car worth more than $500, the amount you can deduct is generally the lower of either how much the organization resells it for or its fair market value on the donation date. Pricing guides like Kelley Blue Book might serve as good estimate tools.
Different rules apply to cars worth more than $500. For these donations, you must attach Form 1098-C to your Form 1040. Fewer requirements apply if you donate a car worth less than $500.
Keep Your Records for Tax Write-Offs
It’s critical to keep each tax receipt proving you made charitable donations for tax deductions. If you give cash, keep the canceled check, credit card statement or payroll deduction documentation to prove you donated by credit card, check or otherwise. For donations over $250, make sure you get an acknowledgment from the organization with all the pertinent information.
The record-keeping requirements for non-cash tax-deductible donations depend on the value of the item and are increasingly stringent depending on the value and type of item. “You might want to take pictures of [noncash] items donated so you can substantiate the quality and condition of them,” said Nisall.
“If you don’t have records to satisfy any IRS auditor questions about your donations, you can lose your deduction,” said Bell. “When Congress toughened the donation documentation laws in 2007, it gave the IRS the ability to automatically disallow undocumented donations. Remember, in all IRS transactions, the burden of proof is on you, the taxpayer. So get your receipts just in case you ever need them.”
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Last updated: Jan. 14, 2021