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How to Deduct Charitable Donations on Your Taxes
Charitable donations can be a valuable way to reduce your tax liability while supporting causes you care about. Here’s a comprehensive guide on how to properly deduct charitable donations on your tax return.
Basic Requirements for Charitable Contribution Deductions
There shall be allowed as a deduction any charitable contribution payment made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary. IRC § 170(a)
To qualify for a charitable contribution deduction, your donation must meet these fundamental requirements:
A charitable contribution is deductible only if it:
- Is a donation or gift to, or for the use of, a qualified organization
- Is voluntarily made without receiving, or expecting to receive, anything of equal or greater value in return
If something of value is received in return and is of lesser value than the amount given to charity, a deduction is allowed for the excess of the amount given over the value of what was received. The donation must also be properly substantiated. IRS IRM 21.6.4 Tax Computation / Accounting Period Changes
Generally, to be deductible as a charitable contribution, a transfer to a charitable organization or government unit must be a gift. A gift for this purpose is a transfer of money or property without receipt of adequate consideration, made with charitable intent. A transfer is not made with charitable intent if the transferor expects a direct or indirect return benefit commensurate with the amount of the transfer. If a taxpayer receives a benefit in return for a transfer to a charitable organization, the transfer may be deductible as a charitable contribution, but only to the extent the amount transferred exceeds the fair market value of the benefit received, and only if the excess amount was transferred with the intent of making a gift. CCA-1105010 CCA-1105010
Itemizing vs. Standard Deduction
Generally, to deduct a charitable contribution, you must itemize deductions on Schedule A (Form 1040). The amount of your deduction may be limited if certain rules and limits explained in this publication apply to you. IRS – Publication 526: Charitable Contributions
Most taxpayers need to itemize deductions to claim charitable contributions. However, there have been temporary exceptions:
The Internal Revenue Service reminded taxpayers that a special tax provision allowed more Americans to easily deduct up to $600 in donations to qualifying charities on their 2021 federal income tax return. Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But a temporary law change permitted them to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify. Under this provision, individual tax filers, including married individuals filing separate returns, could claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction was increased to $600 for married individuals filing joint returns. IRS – Year-end giving reminder: Special tax deduction helps most people give up to $600 to charity, even if they don’t itemize
For taxable years beginning in 2021, if the individual does not elect to itemize deductions for such taxable year, the deduction shall be equal to the deduction, not in excess of $300 ($600 in the case of a joint return), which would be determined if the only charitable contributions taken into account in determining such deduction were contributions made in cash during such taxable year to an organization described in section 170(b)(1)(A) and not to an organization described in section 509(a)(3), or for the establishment of a new, or maintenance of an existing, donor advised fund. IRC § 170(p)
Note that this was a temporary provision for 2021 and is not currently available.
Qualified Organizations
Taxpayers may claim an itemized deduction for contributions or gifts made to or for the use of qualified charitable organizations and governments, other than foreign governments. IRS IRM 4.19.15 Discretionary Programs
Section 170(a) allows as a deduction any charitable contribution made within the taxable year. To qualify as a deduction, the contribution must be made to a donee organization described in section 170(c), including, inter alia, “a corporation, trust, or community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes”. Deductions for charitable contributions are allowable only if verified under the regulations prescribed by the Secretary. Dawson U.S. Tax Court Opinions: Alka Sham Dawson U.S. Tax Court Opinions: Alka Sham
To verify if an organization qualifies, you can use the IRS Tax Exempt Organization Search tool.
Types of Deductible Contributions
Cash Contributions
Section 170(a)(1) allows a deduction for charitable contributions as defined in section 170(c) that are made by the taxpayer during the taxable year if verified under applicable regulations. Generally a cash contribution can be substantiated by (1) a canceled check, (2) a receipt from the donee organization, or (3) other reliable written records showing the name of the donee, the date of the contribution, and the amount of the contribution. Dawson U.S. Tax Court Opinions: Dallas T. & Vivian Hilliard
Property Contributions
For a charitable contribution of property other than money, a deduction is allowed for the fair market value of the property as of the date contributed. However, the amount of the deduction for a charitable contribution of property must be reduced by the amount of gain which would not have been long-term capital gain, had the property been sold at its fair market value. Dawson U.S. Tax Court Opinions: Embroidery Express, LLC
If you donate property other than cash to a qualified organization, you may generally deduct the fair market value of the property. If the property has appreciated in value, however, some adjustments may have to be made. IRS – Charitable contribution deductions
Under section 170(e)(1), the amount of any charitable contribution of property is reduced by the amount of gain that would not be long-term capital gain if the property were sold at its fair market value. In other words, if the contribution were a sale that would have resulted in ordinary income (such as the sale of property held by the donor primarily for sale to customers in the ordinary course of his trade or business), then the amount of the deductible charitable contribution would be generally limited to the LESSER of the donor’s basis, or fair market value. IRS Determination-201443019
Bargain Sales
If a deduction is allowable under section 170 (relating to charitable contributions) by reason of a sale, then the adjusted basis for determining the gain from such sale shall be that portion of the adjusted basis which bears the same ratio to the adjusted basis as the amount realized bears to the fair market value of the property. IRC § 1011(b)
Documentation and Substantiation Requirements
The documentation required depends on the type and value of your donation:
For Cash Donations
For any cash donation made, taxpayers must obtain and keep either a bank record showing the name of the charity, the date and amount of the contribution (including, for example, a cancelled check), or a receipt from the qualified organization showing the name of the charity, the date and amount of the contribution. IRS IRM 21.6.4 Tax Computation / Accounting Period Changes
For Donations of $250 or More
Charitable contributions of cash or property of $250 or more must be substantiated by a contemporaneous written acknowledgment (“CWA”) from the donee. A CWA is “contemporaneous” if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the original return for the taxable year of the contribution or the due date (including extensions) for filing the original return for the year. That acknowledgment, which must be furnished by the donee, must (1) state the amount of cash and describe other property contributed, (2) indicate whether the donee organization provided any goods or services in consideration for the contribution, and (3) provide a description and good faith estimate of the value of any goods or services provided by the donee. Dawson U.S. Tax Court Opinions: Alka Sham
For cash or noncash gifts of $250 or more, taxpayers must obtain a written acknowledgement on or before the earlier of the date the return is filed or the due date, including extensions. IRS IRM 21.6.4 Tax Computation / Accounting Period Changes
For Non-Cash Donations
The taxpayer must also maintain a receipt from the donee organization for each item of donated property that includes the name of the donee, the date and location of the contribution, and a detailed description of the property. Dawson U.S. Tax Court Opinions: Embroidery Express, LLC
If the donation is a small amount, any written or other evidence from the donee charitable organization acknowledging receipt is generally sufficient. Nevertheless, contributions of $250 or more require donee written acknowledgment containing specified information. Dawson U.S. Tax Court Opinions: Suzanne M. Scholz
For Donations Over $500
Additional information is required to support a deduction exceeding $500 for a charitable contribution of property. Specifically, the taxpayer must also maintain written records establishing: (1) the item’s manner of acquisition as well as either the item’s approximate date of acquisition or the approximate date the property was substantially completed and (2) the cost or other basis, adjusted as provided by section 1016, of property donated by the taxpayer during the taxable year. Dawson U.S. Tax Court Opinions: Suzanne M. Scholz
For donations of more than $500 but not over $5,000, the taxpayer must also complete Form 8283, Noncash Charitable Contributions, Section A, and attach it to their tax return. IRS Newsroom – IR-2024-304
For Donations Over $5,000
For any nonmonetary charitable contribution of $5,000 or more, the taxpayer must obtain a “qualified appraisal” for the donated property and attach a completed appraisal summary on Form 8283. Generally, an appraisal is “qualified” if it (1) is prepared no more than 60 days before the contribution date by a “qualified appraiser” and (2) incorporates specified information, including a statement that the appraisal was prepared for income tax purposes, a description of the valuation method used to determine the contribution value. Dawson U.S. Tax Court Opinions: Embroidery Express, LLC
For donations of more than $5,000, the taxpayer must obtain a qualified appraisal of the donated property and complete Form 8283, Section B, including the signature(s) of the qualified appraiser(s) and the charity. IRS Newsroom – IR-2024-304
For Donations of $500,000 or More
For donations of $500,000 or more, the taxpayer must do all the above and attach a complete copy of the qualified appraisal to their tax return. IRS Newsroom – IR-2024-304
Limitations on Deductions
In general, contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income computed without regard to net operating loss carrybacks. Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30 percent adjusted gross income (computed without regard to net operating loss carrybacks), however. IRS – Charitable contribution deductions
The deductibility of a charitable contribution is generally limited to 50% of an individual taxpayer’s “contribution base” for the taxable year; any excess may be carried forward for the succeeding five years. Dawson U.S. Tax Court Opinions: Alka Sham
Individual taxpayers such as petitioners generally may deduct for a taxable year the charitable contributions that they made during the year. Where the total charitable contributions exceed a certain threshold or are a contribution of certain capital gain property, however, the excess amount is generally carried over to future years in the manner prescribed in the Code. Dawson U.S. Tax Court Opinions: Bob R. Davis & Erin Davis
Timing of Contributions
Contributions must actually be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method. IRS – Charitable contribution deductions
Any charitable contribution, as defined in section 170(c), actually paid during the taxable year is allowable as a deduction in computing taxable income irrespective of the method of accounting employed or of the date on which the contribution is pledged. Tresuary Reg. 1.170A-1
Special Considerations
Quid Pro Quo Contributions
Where a taxpayer receives a substantial benefit in exchange for a contribution of property to a charitable organization, a charitable deduction is permitted only to the extent that (1) the fair market value of the property exceeds the fair market value of the benefit conferred and (2) the excess contribution is made with charitable intent and without the receipt or expectation of receipt of adequate consideration. Dawson U.S. Tax Court Opinions: Bob R. Davis & Erin Davis
Donations to Individuals
Contributions to individual students and community members do not qualify as charitable contributions deductible under section 170. Dawson U.S. Tax Court Opinions: Suzanne M. Scholz
Non-Deductible Organizations
Each fundraising solicitation by (or on behalf of) an organization to which this section applies shall contain an express statement (in a conspicuous and easily recognizable format) that contributions or gifts to such organization are not deductible as charitable contributions for Federal income tax purposes. IRC § 6113(a)
Donor Advised Funds
Under the PPA, a taxpayer may deduct a contribution to a donor advised fund only if the sponsoring organization receiving the contribution is one of certain specified types, and the taxpayer making the contribution obtains an acknowledgement from the sponsoring organization that the organization has exclusive legal control over the property contributed. Notice 2007-21
Steps to Claim Charitable Deductions
- Determine if you’ll itemize deductions: Compare your potential itemized deductions to the standard deduction for your filing status.
- Verify the organization’s eligibility: Ensure the organization qualifies to receive tax-deductible contributions.
- Gather documentation: Collect receipts, acknowledgments, and other required documentation based on the type and amount of your donations.
- Complete the proper forms:
- Schedule A (Form 1040) for itemized deductions
- Form 8283 for non-cash contributions over $500
- Maintain records: Keep all documentation for at least three years after filing your return.
Common Pitfalls to Avoid
- Donating to non-qualified organizations: Contributions to individuals, political organizations, or foreign charities generally don’t qualify.
- Inadequate documentation: Failing to obtain proper receipts or acknowledgments can result in denied deductions.
- Overvaluing donated items: The IRS scrutinizes high-value donations, especially of property.
- Missing deadlines: Contributions must be made by December 31 to count for that tax year.
- Ignoring quid pro quo rules: If you receive something of value in return for your donation, you must reduce your deduction by the value of what you received.
Conclusion
Charitable donations can provide valuable tax benefits while supporting causes you care about. By understanding the rules for deducting charitable contributions and maintaining proper documentation, you can maximize your tax benefits while ensuring compliance with IRS requirements.
For the most current and detailed information about charitable contribution deductions, consult IRS Publication 526, Charitable Contributions, or speak with a qualified tax professional who can provide guidance specific to your situation.
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