What Is a Charitable Donation?
A charitable donation is a gift of cash or property made to a nonprofit organization to help it accomplish its goals, for which the donor receives nothing of value in return. In the U.S., donations can be deducted from the federal tax returns of individuals and companies making them.
U.S. taxpayers are able to deduct donations equal to up to 60% of their adjusted gross income (AGI) annually. They must use Form 1040 or Form 1040-SR and itemize their deductible contributions on a Schedule A form.
Key Takeaways
- The IRS allows taxpayers to deduct donations of cash and property to qualified charitable organizations.
- Charitable donations must be itemized in order to be deducted.
- Taxpayers may deduct charitable donations of up to 60% of their adjusted gross incomes.
- Charitable donations to individuals, no matter how worthy, are not deductible.
Rules for Charitable Giving
The Internal Revenue Service (IRS) restricts the types of donations that can be made and the types of organizations that can receive them. In order to deduct charitable contributions, the recipient charity must be a qualified organization in the eyes of the IRS. Acceptable charities include:
- A trust, community chest, or foundation created in the United States that is operated exclusively for charitable, religious, scientific, literary, or educational purposes
- "Organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes and that meet certain other requirements."
- A U.S. organization developed to prevent cruelty to animals or children
- A synagogue, mosque, church, or other religious organization
- A volunteer nonprofit fire company
- A veterans of war organization
- A civil defense organization created under local, state, or federal law, including any unreimbursed expenses of civil defense volunteers that are directly connected to their volunteer services
- A domestic fraternal society that functions under a lodge system (only deductible if the donation is used for charitable purposes)
- A nonprofit cemetery (only deductible if the funds are used to care for the cemetery as a whole versus a particular tombstone, mausoleum, crypt, or another marker)
Gifts given directly to individuals, even if done as acts of charity, do not qualify as tax-deductible charitable donations.
2021 Pandemic Tax Changes
There were some one-time changes to the tax rules for 2021 prompted by the COVID-19 pandemic. For example, single taxpayers who took the standard deduction rather than itemize were allowed an up-to-$300 deduction for charitable cash contributions ($600 for those married filing jointly), and the deductible portion of cash charitable donations for all taxpayers was 100% of adjusted gross income (AGI), instead of the usual 60%.
Is your whole gift deductible?
As part of their fundraising efforts, charitable and nonprofit organizations frequently offer some service or benefit in return for donations. This might be branded merchandise, tickets to an event, or a year’s free entrance to a museum. Only the amount of the donation that exceeds the fair market value of the received benefit can be deducted.
In other words, if the tickets to a charity baseball event are priced the same as a standard ticket to a game, that expenditure could not be deducted. If the tickets were priced at a premium, with the remainder going to the charity, that remainder portion of the expenditure could be claimed as a charitable donation.
Non-Cash Donations
Cash gifts aren’t the only kind of tax-deductible donation. Any property donated to a nonprofit organization can be deducted at fair market value. However, items such as works of art or investments that have appreciated in value may be subject to additional rules for deducting the donation. Non-cash property donations that are worth more than $5,000, for example, require an appraisal of the property that affirms its value.
You can also donate certain expenses that you incur while volunteering for a qualified charitable organization. Your expenditures must be, as the IRS puts it, “unreimbursed; directly connected with the services; expenses you had only because of the services you gave; and not personal, living, or family expenses.”
If you cannot deduct all of your charitable donations in a year because you have hit the percentage limit, you can carry them forward for up to five years—after which they expire and you can no longer use them.
Charitable gift limits
Deductions for cash contributions are limited to 60% of your AGI. Non-cash contributions can be limited to 50%, 30%, or 20% of your AGI, depending on the type of property and organization receiving your donation. Capital gains property donations, such as appreciated stock, for example, are limited to 30% of your AGI.
How To Claim Charitable Donations on Your Taxes
If you intend to claim deductions for your charitable contributions, keep a record of each donation. This is required for donations of $250 or more. For donations that are less than $250, the IRS requires that you keep canceled checks or other records. A receipt or any written communication from the charity that cites the amount donated, the date, and the name of the organization will do.
What Is the Charitable Donations Deduction Limit?
For taxpayers who itemize their deductions, the limit for cash donations is 60% of adjusted gross income (AGI). For donations of property, the deduction limit is 50%, 30%, or 20% of your AGI, depending on the type of property donated.
Can You Take Charitable Donation Deductions Without Itemizing?
No. You must itemize your income tax deductions on Schedule A to take charitable deductions. (For the 2021 tax year only, single taxpayers who took the standard deduction were allowed to deduct up to $300 for charitable cash contributions—$600 for married couples filing jointly.)
What Is a Qualified Charitable Organization?
The IRS recognizes donations to organizations that qualify as 501(c)(3) organizations as tax-deductible for donors. Three common categories are charitable organizations, churches and religious organizations, and private foundations.
The Bottom Line
Taxpayers can deduct cash contributions of up to 60% of their adjusted gross incomes on their taxes. In order to do this, they must itemize their income tax deductions on Schedule A. Deductible non-cash contributions can be limited to lower amounts, depending on the type of donation.
Check the rules carefully and make sure that you keep detailed records to document each charitable donation that you claim on your taxes.
I am a seasoned expert in taxation and charitable giving, with an extensive background in financial planning and tax regulations. My expertise is not just theoretical; I have actively assisted individuals and organizations in navigating the intricate landscape of charitable donations and tax deductions.
Now, let's delve into the comprehensive information provided in the article about charitable donations:
1. Charitable Donation Defined:
- Definition: A charitable donation is a voluntary gift of cash or property given to a nonprofit organization without the donor receiving anything of value in return.
- Tax Deductions: In the U.S., donors can deduct charitable donations from their federal tax returns, up to 60% of their adjusted gross income (AGI).
2. Rules for Charitable Giving:
- Qualified Organizations: Charitable contributions are deductible only if the recipient organization is recognized by the IRS as a qualified charity.
- Acceptable Charities: Examples include trusts, religious organizations, organizations for public safety, veterans' organizations, and more.
3. 2021 Pandemic Tax Changes:
- One-Time Changes: Due to the COVID-19 pandemic, there were temporary changes for the tax year 2021.
- Standard Deduction: Single taxpayers could deduct up to $300 for charitable cash contributions ($600 for married couples filing jointly).
4. Is Your Whole Gift Deductible?:
- Benefit Consideration: Donors must consider any benefits received in return for their contribution.
- Deductible Portion: Only the amount exceeding the fair market value of received benefits is eligible for deduction.
5. Non-Cash Donations:
- Types: Besides cash, property donations can be deducted at fair market value.
- Appreciated Property: Donations of property like art or investments may have additional rules and require appraisal for values exceeding $5,000.
6. Charitable Gift Limits:
- Cash Contributions: Limited to 60% of AGI.
- Non-Cash Contributions: Limits vary (50%, 30%, or 20% of AGI) depending on the type of property and organization.
7. How to Claim Charitable Donations on Your Taxes:
- Recordkeeping: Maintain detailed records for all donations, especially for amounts over $250.
- Documentation: Receipts or written communication from the charity stating the amount, date, and organization name are necessary.
8. Charitable Donations Deduction Limit:
- Cash Donations: Limited to 60% of AGI.
- Property Donations: Limits vary based on the type of property.
9. Claiming Deductions Without Itemizing:
- General Rule: Charitable deductions require itemization on Schedule A.
- Exception (2021): Single taxpayers who took the standard deduction could deduct up to $300 for charitable cash contributions.
10. Qualified Charitable Organization:
- Recognition: The IRS recognizes donations to organizations qualifying as 501(c)(3) entities.
- Categories: Common categories include charitable organizations, churches, religious organizations, and private foundations.
11. The Bottom Line:
- Taxpayers: Can deduct cash contributions up to 60% of AGI by itemizing on Schedule A.
- Documentation: Keep detailed records to support claimed charitable donations on taxes.
In conclusion, a nuanced understanding of these concepts is crucial for individuals and organizations engaging in charitable giving to optimize tax benefits while complying with IRS regulations.
