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Tax Deductions for Charitable Donations

Tax Deductions for Charitable Donations

Donations to qualified charities are tax-deductible and can reduce your taxable income, which can help you reduce your tax bill. You may need to itemize your tax deductions in detail in order to claim them. A breakdown is usually in your best interest when the total of all itemized deductions exceeds the standard amount of the deduction you can make for your filing status.

The good news is that for the fiscal year 2021, you may not need to itemize your 2022 return to claim a tax deduction for your charitable contributions. Individuals, including those who file as married filing separately, can apply for the standard deduction and a deduction of up to $300 for cash contributions paid to qualified charities in 2021. Married couples filing jointly can claim for up to $600.


How to Claim a Deduction for Charitable Contributions

If you choose to itemize your tax deductions, you can claim a charitable donation deduction in Schedule A. The total in Schedule A is then transferred to Form 1040, line 12a. You will also be able to claim the full tax deductions on Schedule A in lieu of claiming the standard deduction. You cannot itemize and claim the standard deduction at the same time.

The schedule is not just for claiming charitable donations. It includes and calculates any detailed deductions for which you are eligible. Other possible deductions include things like medical and dental bills that you paid for yourself or your dependents during the year, including insurance premiums. They also include any state and local taxes you have paid and interest on your home loan. 


Rules for claiming a charitable gift tax deduction

The IRS applies several rules to claim a tax deduction for charitable contributions.

  • Various record-keeping requirements must be met: Documentation includes saving canceled checks, letters of confirmation from charity or charities, and sometimes appraisals confirming the value of the donated property.

  • You are required to contribute to a qualified tax-exempt organization: Charities will inform you 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 are considered qualified charities, as well as some companies and non-profit volunteer funds. The IRS has a survey tool on its website where you can check the status of an organization to which you intend to donate. You can also consult a tax expert to be sure.

  • You must donate property or cash: A commitment or promise to donate is not tax-deductible unless and until you do so.


Keeping Records of your Donation

Your written records should show the name of the charity, the date of your contribution, and the amount you donated. Canceled checks work well as the name of the charity, the date, and the amount of the donation appear there. Bank statements are also useful when showing a gift paid with a debit card, and credit card statements work when showing the same information.

Charities often give donors confirmation letters or written receipts. The IRS may not allow you to claim charitable donations of $250 or more if you do not have a written receipt from your charity documenting your donation and other documents.

Separate acknowledgment may be required for each donation if you make more than one contribution over this amount. Otherwise, the only acknowledgment of receipt must detail each deductible donation with its date.


Tips for donating non-monetary contributions

You must be able to verify the fair market value of the property or assets you donate, including vehicles, boats, or even planes, and for this type of donation, you will also need a written receipt from the charity. You must complete Form 8283 and include it on your tax return if the property is worth more than $500.

Here are some tricks and tips to keep in mind when donating cashless items:

  • Consider the status of each item and arrive at a value: The IRS will allow a deduction for any item that is "in good working order or better." In other words, don't bother taking a deduction for that old basement TV that hasn't worked in years, even though it just needs a new part. At the very least, you should value it in its current state without the new parts. Please retain the price tag and/or store receipt to prove the item's value if it is new.

  • Get a written appraisal if donating a property worth more than $5,000: You must also complete Section B of Form 8283 when donating more than $5,000.

  • Make a list of the items you donate: You will need these details for Form 8283. Keep this list until you file your expenses.

  • Prepare your receipt to prove your tax-deductible donation: If you write it yourself in advance, you can simply have the receipt signed when you deliver the items. This way, you can be sure that the receipt is correct and includes all the necessary information.

  • Remember to take photos with your donations: Having a photo of what you donated can be helpful, especially if you donate many items. Technically it's not a requirement, but it can't hurt if your return is audited. Just take photos on your phone, upload them to your hard drive and save them too.

  • You can also claim a deduction for food and groceries: You can deduct the cost if you donate your groceries to charity. Just be sure to receive an itemized, signed, and a written receipt for your donation, such as "fifteen loaves of bread, twenty one-pound packets of hamburgers," and keep the supply receipt to prove the item prices. 


Tax deduction limits for charitable donations

Generally, you can deduct contributions of up to 30% or 60% of your adjusted gross income (AGI), depending on the nature and tax-exempt status of the charity you are donating to. You can deduct assessed asset contributions up to 20% of the AGI. 

The Tax Cuts and Jobs Act (TCJA) raised the threshold for cash donations to 60% for 2018. This threshold will be in effect until the end of 2025.

You can carry forward the excess to subsequent years if your donations exceed these limits. Excess contributions can be carried forward for up to five years.


Which charitable donations are not tax-deductible?

Certain contributions are not deductible, including:

  • Contributions to foreign governments

  • Contributions to unions, chambers of commerce, or professional associations

  • Gifts for political parties, political campaigns, or political action committees.

  • Gifts offered to individuals

  • Profit contributions to schools and hospitals

It also allows many charitable donations to reduce your tax liability if you choose to itemize.


Summary

  • You must use Schedule A to claim a charitable deduction if you itemize.

  • Keep good records of your donations.

  • There are some rules for claiming a charitable contribution deduction.

  • When you file your 2021 tax return, you can itemize or claim the standard deduction and continue to claim a charitable tax deduction (up to certain limits).


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Pat Raskob
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