Have you made donations to charity? Don't forget to take advantage of available tax deductions!
You are responsible for checking updated IRS rules and laws as changes may have been made.
Below is a concise overview of federal income tax regulations for informational purposes only. We strongly recommend consulting with your tax advisor regarding the tax implications of charitable contributions at the federal, state, and local levels.
Benefits of Charitable Giving
While our belief is that the primary motivation for donating to charity should be altruism, it's important to recognize the significant tax benefits available to donors. Here are some key benefits to be aware of:
Charitable contributions made to qualified charitable organizations may qualify you for a charitable contribution deduction when itemizing your deductions on your income tax return.
When contributions are tax-deductible, the actual cost of your donation is reduced by the tax savings. For instance, if you are in the 33% tax bracket, a $100 donation costs you only $67 ($100 minus the $33 tax savings). As your income tax bracket increases, your actual cost of charitable giving decreases, making contributions more appealing for those in higher brackets. For individuals in the lowest bracket (15%), the actual cost of a $100 contribution is $85, while for those in the highest bracket (35%), it's only $65. This means that wealthier individuals can afford to give more while receiving a larger tax benefit.
Contributions to qualified charities can be deducted in the year they are made, whether by mailing a check or charging it to your credit card. Even if you pay your credit card bill in a subsequent year, the deduction applies to the year in which the charge was made.
Most charitable organizations qualify for a charitable contribution deduction, but there are exceptions. You can only deduct contributions made to qualified recipients, and certain organizations, such as foreign governments, foreign charities, and specific private foundations, do not qualify for deductions. However, all organizations rated by Charity Navigator meet charitable status criteria, and your donations are deductible, subject to certain limits.
An organization could lose its charitable status if a substantial part of its activities involves lobbying or attempting to influence legislation. However, a charity can still qualify while engaging in these activities, as long as political expenditures constitute an "insubstantial" portion of its operations. Additionally, donations to individual needy individuals are not deductible.
While there are limits on how much you can deduct, they are typically quite high. Most individuals do not encounter these limits unless they contribute over 20% of their adjusted gross income to charity. If the contribution goes to a public charity, the deduction is capped at 50% of your contribution base. For instance, if your adjusted gross income is $100,000, your deduction limit for that year is $50,000.
Rules also exist for non-cash donations, such as property owned for over a year. In such cases, the deduction value is usually equal to the property's fair market value. Contributing appreciated property can be advantageous, as you receive a deduction for the full fair market value while avoiding taxation on any appreciation.
It's important to remember to donate items in good condition when giving clothing, furniture, or equipment you no longer use. The IRS only permits deductions for items in "good condition or better." Also, always request a receipt when donating to organizations like Goodwill or the Salvation Army, as this receipt can be worth substantial tax savings.
When contributing $250 or more separately, a written confirmation from the charity is required, and a canceled check alone is insufficient. If your contribution to a religious organization is solely for an intangible religious benefit (such as annual dues), written proof is still necessary. For other cash contributions, the charity must estimate the fair market value of any goods or services provided to you in return for your donation.
Beginning in 2007, the IRS mandates written documentation to substantiate deductions for all monetary donations, including cash. Having a canceled check, credit card statement or a written acknowledgment from the charity is essential in case of an audit. Dropping cash into a collection bucket without a receipt will no longer be deductible.
In conclusion, while the primary motive for charitable giving should be the desire to help others, it's essential to understand and make use of available tax benefits. By doing so, you can maximize the impact of your contributions while also enjoying potential tax savings.
Organizations Eligible for Tax-Deductible Donations
Every organization evaluated by Charity Navigator is eligible for tax-deductible donations. For organizations not evaluated by Charity Navigator, you can generally deduct contributions of up to 50% of your adjusted gross income if they fall into one of the following categories:
- Churches and religious organizations
- Tax-exempt educational organizations
- Tax-exempt hospitals and certain medical research organizations
- Government units (such as state or local political subdivisions)
- Publicly supported organizations (e.g., community chests)
- Certain private foundations that distribute contributions to public charities within a specified time frame
- Private operating foundations that pool donations in a common fund
- Membership organizations rely on the general public for more than one-third of their contributions.