What are Charitable Contribution Deductions
Donations to charity are tax deductible expenses as long as you give to organizations approved by the IRS. These donations can reduce your taxable income and lower your tax bill. You may deduct cash donations or property donations; such as a car, furniture, or clothing!
What is a Charitable Contribution
You may deduct donations that you give to organizations that are religious, charitable, educational, scientific, or literary in purpose. You may also deduct what you give to organizations that work to prevent the cruelty to children or animals.
Cash Donation Tax Limit
You can deduct your cash donations up to 50% of your adjusted gross income (AGI) if you itemize your deductions, and may be limited to 30% or 20% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to. There is no dollar limit on your annual deduction; you are only limited by your AGI.
Charitable contributions in excess of 50% of your AGI can be carried forward for up to 5 years.
Charitable Contribution Example: Joaquin Guerrero has an AGI of $40,000. He may deduct cash donations of only $20,000. If his charitable contribution amount is above the $20,000 limit, $26,000 for example, he can deduct $20,000 in 2013 and carry the excess $6,000 forward to 2014.
Charitable Contribution Examples
- Churches, synagogues, temples, mosques, and other religious organizations.
- Federal, state, and local governments, if your contribution is solely for public purposes.
- Nonprofit schools and hospitals.
- Public parks and recreation facilities.
- Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts, Girl Scouts Boys and Girls Clubs of America, etc….
- War Veterans’ groups.
- Out-of-pocket expenses when you serve a qualified organization as a volunteer
Year-End Tax Deduction
You deduct charitable contributions on your tax return field for the year in which you paid them in cash or property. A charitable contribution by check is deductible in the year you give the check, even if it is cashed in the following year.
Charitable contribution example 1: Matt Cherrie writes a check to the Red Cross on December 31, 2013 as a charitable donation in the amount of $100. The $100 is deductible in 2013.
A postdated check with a 2013 date is not deductible until 2014.
Contributions by your credit card are deductible in the year you charge them, not in the year you pay your credit card bill. If you charge your donation or gift by December 31, 2013 the donation is deductible in 2013 even though you pay the credit card company in 2014.
Charitable Donations of Less Than $250
If you make any noncash contribution, you must get and keep a receipt from the charitable organization showing:
- 1. The name of the charitable organization.
- 2. The date and location of the charitable contribution.
- 3. A reasonable detailed description of the property.
A letter or other written communication from the charitable organization acknowledging receipt of the contribution and containing the information in (1), (2), and (3) above will serve as a receipt.
You are not required to have a receipt where it is impractical to get one (for example, if you leave property at a charity’s unattended drop site).
Charitable Cash Donations of $250 or More
You may deduct a gift of $250 or more only if you have a statement from the charitable organization showing the information in:
- 1. The amount of any money contributed and a description (but not value) of any property donated.
- 2. Whether the organization did or did not give you any goods or services in return for your contribution. If you did receive any goods or services, a description and estimate of the value must be included. If you received only intangible religious benefits (such as admission to a religious ceremony), the organization must state this, but it does not have to describe or value the benefit.
Key Difference Between Cash Donations under $250 vs. Cash Donations over $250
Note that if you make several smaller gifts to one charity throughout the year, they are not totaled up to the $250 limit. Each charitable contribution stands alone (unless you intentionally make donations to avoid the dollar limit). The key to understand is that you don’t need receipts of what you purchased if you get a receipt from whomever you donated to and it’s under $250 whereas if you donate something and you want to get a deduction for over $250, you will need whomever you donated to, to state that whatever you donated to them is worth $250.
Charitable contribution example 2: Greg Raney donates $200 each month to his local church. Greg does not need any acknowledgement from the church to claim his total deduction of $2,400. Whereas if Greg donated something worth $400 and tried to claim in, he would need a document from the church clearly stating whatever he donated was worth $400.
One thing you can do to avoid having actual receipts with dollar amounts is go a little under the charitable contribution $250 limit. So, say you have a lot of clothes to donate; maybe $1000. If you try and donate them all at once and write off $1000 on your tax return you will need receipts from whomever you donated stating that the clothes are indeed worth $1000. Save yourself the headache and spread the donations out. Donate 5 times and claim $200. In this case, you only need a receipt from whomever indicating you donated clothes. No dollar amount is needed on the receipt. The reason is you are under $250.
Charitable Property Donations
You are allowed to donate property, such as clothing or furniture, at their fair market value at the time you donated them. 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.
Charitable Property Donation Requirements
- 1. The property must be held “long term” (described below).
- 2. If the property is tangible personal property (ie cars, equipment, etc..) the charity must put the property to use in its exempt purpose.
- 3. The property cannot be “ordinary income property”.
- 4. You must comply with “substantiation requirement”; property donated in excess of $500 (described below).
Property Donation Holding Period
You must own have owned the property that you are donating for more than one year prior to the date of your donation.
Charitable Property Donations of $500 or More
If the amount of your deduction is more than $500, you must attach IRS Form 8283, Noncash Charitable Contributions, to your tax return.
If you make a charitable contribution donation exceeding $5,000, you must obtain a written appraisal for your donation. The appraisal is summarized on the form.
Charitable Contributions You Cannot Deduct
- A contribution to a specific individual.
- Travel expenses (including meals and lodging) while away from home, unless there was no significant element of personal pleasure, recreation, or vacation in the travel.
- Political contributions.
- Homeowners associations.
- Dues, fees, or bills paid to country clubs, lodges, fraternities, sororities, or similar groups.
- Cost of raffle, bingo, or lottery tickets.
- Value of your time or services.
- Gifts to individuals and groups that are run for personal profit.
- Gifts to groups whose purpose is to lobby for changes in the laws.
- Gifts to civic leagues, social and sports clubs, labor unions, and chambers of commerce.
- Your personal expenses.
For a quick overview of the 2013 IRS Charitable Contribution Deduction, watch the video below:
For a more detailed overview of Charitable Contributions Tax Deductions, read IRS Publication 526.