The Tax Deduction for Charitable Donations
Rules and Guidelines for Deducting Charitable Contributions in 2019
Donations to qualified charities are tax-deductible expenses that can reduce your taxable income and lower your tax bill. You must itemize your tax deductions to claim them, however, and this is typically only in your best interest if the total of all your itemized deductions exceeds the amount of the standard deduction you would receive for your filing status.
How to Claim a Deduction
You can claim a tax deduction for charitable giving on Schedule A. The total of Schedule A then transfers to line 8 of the new 2018 Form 1040 that was introduced for tax year 2018. You'd claim the total of your Schedule A deductions in lieu of claiming the standard deduction. You can't both itemize and claim the standard deduction as well.
The schedule isn't just for claiming charitable donations. It includes and calculates all itemized deductions you're eligible for. Other possible itemized deductions include things like medical and dental expenses you paid for yourself or your dependents over the course of the year, including many insurance premiums. They also include state and local taxes you might have paid and home mortgage interest.
Rules for Claiming the Charitable Contribution Deduction
The IRS imposes several rules for claiming a deduction for charitable contributions:
- You must actually donate cash or property. A pledge or promise to donate is not deductible unless and until you actually pay.
- You must contribute to a qualified tax-exempt organization. Charities will let you know if they have 501(c)(3) tax-exempt status, but some organizations, including churches and other religious organizations, are not required to obtain 501(c)(3) status from the IRS. They count as qualified charities regardless, as do certain trusts and non-profit volunteer fire companies. The IRS provides a search tool so you can check the status of an organization you're considering donating to, or check with a tax professional.
- You must meet several recordkeeping requirements. This includes saving canceled checks, acknowledgment letters from the charity or charities, and sometimes appraisals that confirm the value of donated property.
Keeping Records of Your Donation
Your written records must indicate the name of the charitable organization, the date of your contribution, and the amount that you gave. Canceled checks work well because the name of the charity, the date, and the amount of the gift all appear there. Bank statements are good, too, when they show a gift paid by debit card, and credit card statements work when they show this same information.
Charitable organizations will often provide donors with written letters of acknowledgment or receipts. The IRS can disallow charitable donations of $250 or more if you don't have a written acknowledgment from the charity to document your gift, in addition to your other records.
You might need a separate acknowledgment for each gift if you make more than one contribution over this amount. Otherwise, the single acknowledgment must list each tax deductible donation in detail with the date you made it.
You must be able to substantiate the fair market value of goods or property you donate, including vehicles, boats, or even planes, and you'll need a written acknowledgment from the charity for this type of gift as well. You must fill out Form 8283 and include it with your tax return if the property is worth more than $500.
Tips for Donating Non-Cash Items
- Make a list describing the items you're going to give away. You'll need these details for Form 8283.
- Note the condition of each item and arrive at a value. The IRS will allow a deduction for any item that's in "good working condition or better." In other words, don't bother to claim a deduction for that old TV in your basement that hasn't worked in years, even if it just needs a single new part. At the very least, you must have it valued in its current condition without the new part. You can use valuation guidelines provided online by the Salvation Army or Goodwill for common items such as clothing, small appliances, and other household goods. Save the price tag and/or the store receipt to prove the item's value if it's brand new.
- You can claim a deduction for food and groceries, too. You can deduct the cost if you donate groceries to a charity as well. Just be sure to get a written, detailed, signed acknowledgment of your donation—such as "five loaves of Brand X bread; four one-pound packages of hamburger—and keep your grocery store receipt to prove the prices of the items.
- Consider taking pictures of your donations. Having a picture handy of what you donated can be useful, especially if you're donating a lot of items. It isn't technically a requirement, but it can't hurt in the event that your return is audited. Just snap away on your phone, then send the pictures to your hard drive and save them there, too.
- You can prepare your own receipt to prove the tax-deductible donation. If you write it yourself ahead of time, you can simply have it signed when you drop off your items. This way you can rest assured that the receipt is correct and it includes all the information you need.
- Obtain a written appraisal if you're donating property worth more than $5,000. You must also complete Section B of Form 8283 in this case.
Limits on the Charitable Contribution Deduction
Generally, you can deduct contributions up to 30% or 60% of your adjusted gross income (AGI), depending on the nature and tax-exempt status of the charity to which you're giving. You can deduct contributions of appreciated capital gains assets up to 20% of your AGI.
The limit for cash donations was 50% of your AGI through tax year 2017. The Tax Cuts and Jobs Act (TCJA) increased this threshold to 60% as of 2018 through at least the end of 2025 when the TCJA potentially expires.
You can carry the excess over to subsequent tax years if your gifts exceed these thresholds. Excess contributions can be carried over for a maximum of five years.
It used to be that your deduction could be be affected if your AGI was too high, but this rule was repealed by the TCJA.
The AGI income limits for 2017 were $313,800 if you were married and filing jointly or a qualifying widow(er), $287,650 if you were eligible to file as head of household, $261,500 if you were single, and $156,900 if you were married but elect to file a separate tax return.
The total of your itemized deductions—not just charitable donations—was limited to 80% of your AGI or 3% of the amount by which your income exceeded the limit, whichever was less, if you earned more than these thresholds.
It's something to keep in mind if you're filing a tax return for a previous year.
There is no AGI cap for itemized deductions beginning in tax year 2018 and going forward through at least tax year 2025 under the terms of the TCJA.
What's Not Deductible
Some contributions aren't tax deductible, including:
- Gifts made to political parties, political campaigns, or political action committees
- Gifts donated to individual people
- Contributions to labor unions, chambers of commerce, or business associations
- Contributions to for-profit schools and hospitals
- Contributions to foreign governments
That still allows for a lot of charitable giving to whittle away at your tax liability if you want to itemize.