The Charitable Contribution Deduction

Get a Tax Break for Your Donations

Donating to a charity may be a “feel good” deed, but donations are also a tax deductible expense.  Charitable contributions are just one more way you can lower your taxes.  Before taking the Charitable Contribution Deduction, remember that there are certain rules for qualifying.

Be sure the charity you donate to is a qualified tax-exempt organization.  Churches and other religious organizations aren’t required to file for tax-exempt status from the IRS.  But other charitable organizations must have received their 501(c)(3) status in order for your donation to be tax deductible under the Charitable Contribution Deduction, regardless if it’s cash or property.  Always check with the organization to be sure your donation is tax deductible.  If they’re not sure, you can check IRS Publication 78, which lists most qualified organizations.

Keep detailed records.  Always get a receipt for your donation whether it’s cash or an estimated value of donated goods.  If writing a check, keep the cancelled check.  If you donate a large property item, like a car, be sure to get a letter of acknowledgement stating the value.  If the item is valued at over $5000 you must have a written appraisal of its fair market value to take the Charitable Contribution Deduction.

Any time you make a donation, make a note of the name of the charity, the date of your donation and the amount or value.  To take the Charitable Contribution Deduction you must itemize your donations, so this information will be beneficial. 

Know the contribution limits.  Depending on your income, you may not be able to deduct all of your charitable contributions.  In general, the following rules apply:

• Cash contributions are deductible in full up to 50% of your adjusted gross income.
• Property contributions are deductible in full up to 30% of your adjusted gross income.
• Appreciated capital gain property, such as stocks, jewelry or real estate, are deductible in full up to 20% of your adjusted gross income.

Be careful, though.  Some charities fall under the 30% or 20% limit even if you are donating cash.  The charity should be able to tell you which category they fall under.  If they can’t, check the Limits on Deductions section of IRS Publication 526, Charitable Contributions, to see which category they fall under.  The good news is if you exceed the adjusted gross income limits one year, you can carryover the deduction to the each of the next five tax years until the deduction is used up.

Know what’s not deductible.  Contributions to certain organizations do not qualify under the Charitable Contribution Deduction.  These organizations include:

• Political parties, campaigns, or action committees.
• Fees or dues paid to professional associations, labor unions, or business leagues.
• Contributions to homeowner’s associations or country clubs.
• Donations to for-profit schools or hospitals.
• The value of your time or income lost due to time donated to a non-profit.

Once you’ve determined what you can deduct and have all your paperwork in order, you must know how to file the deduction.  Several forms may be involved, depending on the value of your contribution.  First, you must be able to itemize your deductions.  If you are taking the standard deduction on your taxes, you won’t be able to claim the Charitable Contribution Deduction.  Deductions must be itemized on your 1040, Schedule A.  Second, if your total non-cash donations exceed $500 you will need to file IRS Form 8283 along with your other tax forms.  If the item was a motor vehicle, plane or boat you must also file IRS Form 1098-C.

Taking the Charitable Contribution Deduction can sometimes be confusing.  The easiest way to determine your deductions is to use an online e-file site like www.efiletaxreturns.com.  The site will ask you pertinent questions about your donations and help determine what category they fall under and how much you can deduct.  You won’t be asked to submit your documentation with your tax return.  But, remember to keep those records with a copy of your tax return in case of audit.  If you can’t prove your donations, you won’t qualify for the deduction and may face penalties and fines.