While charitable contributions or donations can help you lower your taxable income, they also enable you to positively impact society by addressing a specific need you have an interest in.

Charitable contributions can consist of donated money, time, resources, or other assets that are given to charitable organizations to improve the overall well-being of people, communities, or the world.

What is charitable giving?

A charitable donation can take many forms, such as:

• Financial: a monetary donation is the most common form of charitable donation, whether you make a single donation or establish an ongoing donation schedule.
• Time: volunteers donate time and skills to organizations to reduce costs.
• Legacy giving: Using estate planning, people donate a portion of their assets or estate to a specified organization.
• Goods: Many people donate supplies, food, clothing, and furniture to organizations so they can be distributed to people in need.
• Corporate social responsibility: Businesses can make financial contributions, encourage employee volunteer programs, and support community initiatives as part of their corporate social responsibility plan.

Can you deduct charitable donations from your taxes?

In 2020-2021, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) permitted taxpayers up to $600 in donations to qualified charities without a need to itemize them. This benefit has expired.

In 2023, taxpayers can only claim cash and property contributions to public charities and operating foundations up to 60% of their adjusted gross income, but you may be limited to 20%, 30%, or 50%, depending on the type of donation and the organization. Excess donations can sometimes be carried over and deducted over the next five years.

If you donate property to a charitable organization, you can typically claim the fair market value of the property at the time of donation.

Another option for deducting charitable giving on your tax return is to take the standard deduction based on your marital and filing status. If you choose this option, there is no benefit to itemizing charitable donations.

What can you claim on your taxes?

To claim a charitable deduction on your taxes, you must give the gift with no expectation of receiving anything in return. If you receive anything in return, you can only deduct the value of your contribution in excess of what you’ve received. You must itemize your charitable gifts by completing Schedule A of IRS Form 1040.

Fair market value is used to determine the value of goods and property donated to qualified organizations. For example, suppose you pay $100.00 for a charitable dinner. The dinner has a fair market value of $40.00. You can claim $60.00 as a charitable donation.

Fair market value is not the value you paid for the item. Instead, it is the value for which the item could be sold in a thrift or second-hand store.

You can only deduct clothing and household items if they are in good used condition or better.

According to the IRS Publication 526, special rules exist for the following types of donations:

• Clothing
• Household items
• Cars, boats, and airplanes
• Taxidermy property
• Business inventory
• A patent or other intellectual property
• Partial interest in a property or a property with debt
• A qualified conservation contribution

What can’t you deduct?

The Internal Revenue Service lists the following as things you cannot deduct or can only deduct in part:

• Contributions to specific individuals
• Contributions to a non-qualified organization
• Contributions for which you receive a benefit
• The value of your time or services
• Your personal expenses
• A qualified charitable donation from an individual retirement account (IRA)
• Appraisal fees

What organizations qualify for charitable donations?

Examples of charitable organizations that can be tax exempt as defined by section 501(c)(3) of the Internal Revenue Code include:

• A church or church association
• Nonprofit educational organizations such as Scouts, colleges
• Nonprofit daycare centers for the general public to allow parents to be gainfully employed
• A nonprofit healthcare organization, such as the Red Cross
• The United Way
• Museums
• Organizations that maintain public parks
• Volunteer fire companies
• Civil defense organizations
• Utility company emergency energy programs

An organization can be a nonprofit without having 501(c)(3) status. Check your organization’s status carefully if you plan to itemize and deduct your charitable giving on your taxes. You can do so by using the IRS Exempt Organizations Select Check tool.

Deduction rules vary based on whether an individual, business, or corporation is donating. The tax deduction ceiling also varies by charitable organization.

How should you keep track of your charitable contributions?

To qualify for tax deductions, you need to keep detailed records of your charitable deductions. List the type and amount of every deduction you plan to claim.

Financial deductions can be made by cash, checks, electronic funds transfer, debit card, credit card, online payment services, payroll deduction, or gift card.

For your records, you need a bank record showing the name of the qualified organization, the date of the contribution, and the contribution amount. A receipt from the organization or payroll deduction records that shows the amount of the contribution and the date. If the donation exceeds $250.00, a written acknowledgment from the organization is needed.

For non-cash donations, a receipt showing the organization’s name, date, and location and a property description is sufficient for donations valued at under $250. For donations valued over $250, meeting additional requirements may be necessary, including a contemporaneous written acknowledgment, a written appraisal of the property from a qualified appraiser, and filing Form 8283 with your tax return.

Don’t forget that mileage and expenses directly connected to volunteer work, with no value outside of the volunteer setting, may also be tax deductible. Keep your receipts.

If you would like to discuss your charitable or legacy giving, schedule a call with us at 855.631.3457 to learn more about how to protect those most important to you.