Charitable contributions, also known as charitable donations, are gifts made to qualified organizations that have obtained 501(c)(3) tax status, such as educational institutions, religious organizations, government entities, and other charities. Qualified organizations typically receive most of their funding and support from gifts, grants, and contributions from the public.
From a tax perspective, charitable contributions are tax-deductible. Taxpayers may lower their yearly taxes by claiming an itemized deduction on their tax return based on the cash or fair market value of the donation, subject to a few limits. Because charitable contributions are tax-deductible, taxpayers often increase their charitable donations during the holidays or before the end of the year.
Special Rules for 2020
The CARES Act created ways to give incentives for people who are willing to help struggling entities. Accordingly, If you made cash contributions to a charity in 2020, you may be entitled to additional benefits. Under the Act, you can deduct up to $300 of cash contributions if you don’t itemize your deductions. This is in addition to claiming the standard deduction.
The Act has also increased the deductions for a cash contribution to 100% for the year 2020.
Things to Keep in Mind When Making a Charitable Contribution
It is important to remember that charitable contributions must be made to qualified organizations to be deductible. They may be made anytime during the tax calendar year to qualify.
According to the Tax Cuts and Jobs Act, P.L. 115-97, there are a number of things you need to be aware of when you make charitable contributions. These include:
60% Cap on Contributions
The Act increased the limits of charitable deductions to 60% for the years starting Dec. 31, 2017 up to Jan 1, 2026. Note that this only applies to cash contributions to qualified charities.
One other tax advantage of making charitable donations is your ability to save some money on appreciated property.
If you donate appreciated assets instead of cash contributions, the charity can benefit from the appreciated asset's current market value. At the same time, you may also be entitled to capital gains taxes of up to 15% or 20% on the appreciation.
Tax Exempt Organization Search
This tool allows you to check if an organization is eligible to receive tax-deductible charitable contributions. You can also use this tool to get information on the federal tax status and filing of an organization.
Below are additional tips for making charitable contributions.
- Charitable contributions must be itemized using IRS Form 1040.
- Clothing and household items must generally be in good used condition or better to be deductible.
- The amount of your donation might be reduced by contributions from which you may benefit. For example, if you pay $250 for the price of a $50 ticket to a charity ball, only $200 is tax-deductible, whether or not you attend the event.
- To claim a deduction for cash, check, or monetary gifts, you must keep a bank record, payroll deduction record, or written communication from the charity organization that includes the date and amount of the contribution. For contributions totaling $250 or more, you must also include a description of any property contributed, and whether any goods or services were given in exchange for the gift.
- Additional forms may be required to claim deduction for contributions over a certain amount (for example, Form 8283 for non-cash contributions over $500, and Section B of Form 8283 for contributions valued at over $5000).
For more information, visit www.IRS.gov.
What Constitutes a Charitable Contribution?
Generally speaking, a charitable contribution is anything that may be of value to a qualified charitable organization. This includes money or property in the form of cash, clothing, household items, cars, real estate, securities, and other assets or services.
According to the IRS, donations to the following entities are tax-deductible, so long as they do not benefit any specific individual:
- Churches, synagogues, temples, mosques, and other religious organizations
- Federal, state, and local governments, if your contribution is solely for a public purpose
- Nonprofit schools and hospitals
- Public parks and recreation facilities
- War veterans groups
- Expenses paid for a student living with you, sponsored by a qualified organization
- Out-of-pocket expenses when you serve a qualified organization as a volunteer
- Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts, Girls Scouts, and many other non-profit organizations.
Conversely, contributions to the following are not tax-deductible:
- Political groups or candidates running for public office
- Professional groups (such as lawyers, doctors, civil leagues)
- Value of blood donations
- Cost of raffle, bingo, or lottery tickets
- Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups
- For-profit hospitals and schools
- Value of your time or services
Contact an Attorney to Learn More About Charitable Contributions
Charitable contributions are a good way to reduce your taxes while also helping others. To learn more about how you can claim the charitable contribution tax deduction, you may wish to speak to a local tax attorney who will be familiar with the tax code, can help with any necessary filing, and ensure that you're in compliance with federal and state laws.