You can take deductions on your federal income taxes for charitable contributions you make. However, there are certain rules you need to follow. If you don't, the IRS won't allow the deduction. That may mean a higher tax bill, a lower refund or even penalties.
Rules for Deductions
There are a few basic rules when it comes to deducting charitable donations.
The donation must be made to a qualified organization. Most organizations need to apply to the IRS before they may accept charitable donations. The IRS keeps a list of most qualified organizations. Good examples include churches and other religious organizations, schools, fraternal organizations, and nonprofit charities like the Red Cross.
Donations to individuals are never deductible.
As a general rule, your donation can't be more than a certain percentage of your adjusted gross income (AGI). This is the amount line 38 of your 1040 Form. The amount of your deduction is limited to 50 percent of your AGI. It may be limited to 30 or even 20 percent of your AGI, depending on the type of property you give and the type of organization you give it to.
The organization you're donating to should be able to tell you if your deduction is limited by the 50, 30 or 20 percent rules. If your deduction is limited because of one of these rules, it's possible to take a deduction for the excess amount on future tax returns. This is called carrying forward the deduction.
If your total contributions for the year are 20 percent or less of your AGI, you don't need to worry about the 50, 30 and 20 percent rules.
The donation must be a payment, gift or contribution as defined in the Tax Code. In other words, the donation must be:
- Property other than cash, like clothing and household items
- An out-of-pocket expense you pay in connection with working for a charity, such as the mileage for using your personal car for doing work for a charity, like delivering meals to the elderly in your community
- Amounts you pay to support certain students who live in your household, like a foreign exchange student
Also, you can't keep any control over a donation. And, you can't get a benefit in return from the charity. If you get a return benefit, only the excess of the contribution over the benefit may be deducted.
For example, say you pay $65 for a ticket to a dinner-dance at a church. All the proceeds go to the church. You know your ticket has a fair market value of $25. To figure the amount of your charitable contribution, you subtract the value of the benefit you receive ($25) from your total payment ($65). You can deduct $40 as a charitable contribution to the church.
Your donation must be properly valued. Cash is easy. Noncash property can be tricky. Here, the amount of the deduction is measured by the fair market value of the property. Fair market value is the amount a willing buyer would pay and a willing seller would accept for the property.
Ask yourself: How much would pay for the item? How much would you charge a stranger for the item?
If the IRS challenges the deduction, you must have the records to back it up. Each contribution of $250 or more, whether it's cash or property, must be supported by a written receipt from the organization. The receipt should include the amount contributed, whether the organization gave you anything in return for the donation, and a description and estimate of the value of any return benefit you received.
- Your total noncash donation is more $500, complete Section A of Form 8283. If you don't, the IRS will disallow the deduction
- If any one item you donate is valued at more than $5,000, complete Section B of Form 8283 and attach it to your return
- If your noncash donation is more than $500,000, you must attach a qualified appraisal of the property to your return
There are many other rules and exceptions. Be sure to read the IRS materials carefully to make sure you're doing things right. If you have any questions about deducting donations, talk to a tax lawyer or a professional tax preparer before you file your return.
Questions for Your Attorney
- Can I take a tax deduction for the time that I spent volunteering for a charitable organization?
- If I receive a gift when I make a donation, is the full amount of my donation tax deductible?
- What should I do if I can't find my receipts or canceled checks for donations I made?