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.
Here are some basic rules for 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 schools, hospitals, churches, and nonprofit charities like the Sierra Club.
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). Prior to the Tax Cuts and Jobs Act (TCJA), the amount of your deduction was limited to 60 percent of your AGI. This was increased under the TCJA to 60 percent of your AGI.
You can only deduct charitable contributions if you itemize your personal deductions instead of taking the standard deduction. The TCJA nearly doubles the standard deduction for individual taxpayers -- to $12,000 for singles and $24,000 for marrieds filing jointly. This means far fewer people will itemize instead of taking the standard deduction. It also means far fewer people will donate to charities because so many people will no longer get a tax benefit from their charitable contributions.
The donation must be a payment, gift or contribution as defined in the Tax Code. In other words, the donation must be:
You can't keep control over a donation you give. And you can't get a benefit in return from the charity.
If you get a benefit, only the excess of the contribution over the benefit may be deducted. For example, say you pay $100 for a ticket to a dinner-dance at a school. All the proceeds go to the school. You know your ticket has a fair market value of $60. To figure the amount of your charitable contribution, you subtract the value of the benefit you receive ($60) from your total payment ($100). You can deduct $40 as a charitable contribution to the school.
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.
If the IRS challenges the deduction, you must have the records to back it up.
For cash gifts of any amount, you must have a receipt showing the date and amount of the contribution. Email communications verifying the donation are usually acceptable. You can also use a bank or credit card statement, cancelled check, or other bank record that shows the transaction.
Contributions of $250 or more, whether 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. There are also special reporting requirements for noncash donations discussed below.
You report your charitable contributions as itemized deductions on Schedule A of Form 1040.
If your total noncash donation is more $500, you must file Form 8283 with your tax return. You only have to complete Section A of Form 8283 if your total gifts are less than $5,000 or include publicly traded stocks (even if they’re worth more than $5,000).
If you donate property valued at more than $5,000, you will likely need to get an appraisal. This is required whether you donate one big item or many “similar” items with a total value of $5,000 or more. You will need to complete Section B of Form 8283 and attach it to your return.
Special rules apply for donating used cars and vehicles. If you claim more than $500 for the vehicle you donate, you will need a written receipt from the charity. How much you can claim will depend on what the charity does with the vehicle. The charity usually provides this information on IRS Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes.
There are 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.
