How to Write Off Charitable Donations on Taxes

The U.S. tax code offers a tax incentive for individuals to support charitable causes through tax deductions. This system allows taxpayers to lower their taxable income by the amount of their contributions. However, this benefit is not automatic, and to claim a deduction, taxpayers must follow specific Internal Revenue Service (IRS) rules. These regulations govern everything from the types of organizations that can receive deductible donations to the kind of documentation needed to substantiate a claim.

Determining Your Eligibility to Deduct

The ability to deduct charitable donations depends on whether you take the standard deduction or itemize deductions. The standard deduction is a fixed dollar amount, determined by filing status, that taxpayers can subtract from their income. Itemizing, on the other hand, involves adding up all eligible expenses, such as mortgage interest, state and local taxes, and charitable gifts, and subtracting that total from your income.

A taxpayer can only deduct charitable contributions if they choose to itemize. This choice is only financially advantageous if the sum of all itemized deductions is greater than the standard deduction amount for their filing status. For example, if a married couple’s standard deduction is $29,200, they would need their combined itemized deductions to exceed this figure to benefit from writing off their charitable gifts.

If their total itemized deductions, including $5,000 in donations, only amount to $25,000, they would be better off taking the higher standard deduction, and their charitable giving would not provide a direct tax benefit.

Identifying Qualified Donations and Organizations

A contribution is only deductible if made to a “qualified organization” as defined by the IRS. This category includes entities registered under section 501(c)(3) of the tax code. Taxpayers can verify an organization’s status using the IRS’s online Tax Exempt Organization Search tool.

Qualified organizations include:

• Public charities and private foundations
• Churches, synagogues, temples, mosques, and other religious organizations
• Government entities, if the contribution is for public purposes
• Nonprofit schools and hospitals

It is also important to understand what does not qualify. Donations made directly to individuals, political campaigns, or for-profit businesses are not deductible. The value of your time or services when volunteering is also not deductible, though certain out-of-pocket expenses incurred during that service may be. Deductible contributions can take several forms, including cash, property like clothing or vehicles, and financial assets such as stocks.

Calculating the Value of Your Contribution

The value of a cash donation is the amount of money given. For non-cash contributions, the value is determined by their “Fair Market Value” (FMV) at the time of the donation. FMV is the price that property would sell for on the open market. For common household items like used clothing or furniture, this value is what a buyer would pay for them in their current condition, which is often significantly less than the original purchase price.

For a donated vehicle, the deduction is limited to the gross proceeds the charity receives from its sale. However, if the charity uses the vehicle in its operations or makes significant improvements, the taxpayer may be able to claim the higher FMV. Donations of appreciated property, such as stocks held for more than a year, are valued at their FMV on the date of the gift.

The IRS also imposes limits on the amount of charitable contributions a person can deduct in a single year, based on their Adjusted Gross Income (AGI). For most cash contributions to public charities, the deduction is limited to 60% of the taxpayer’s AGI. For non-cash property donations, the limit is 50% or 30% of AGI, depending on the type of property and the recipient organization. If a taxpayer’s donations exceed these limits, the excess amount can be carried over and deducted in the next five years.

Required Documentation and Recordkeeping

The IRS requires specific documentation to substantiate charitable deductions, with the requirements escalating based on the donation’s value.

Donations Under $250

For any single cash or non-cash donation under $250, you must keep a reliable record, such as a canceled check, a bank or credit card statement, or a receipt from the charity. This record must show the name of the charity, the date, and the amount of the contribution.

Donations of $250 or More

When a single contribution is $250 or more, you must obtain a “contemporaneous written acknowledgment” from the organization before filing your tax return. This document must state the amount of the cash contribution, describe any non-cash property given, and state whether the organization provided any goods or services in exchange for the gift. If goods or services were provided, the charity must provide a good-faith estimate of their value.

Non-Cash Donations Over $500

For non-cash donations exceeding $500 in total value, you must file Form 8283, Noncash Charitable Contributions. Section A of this form requires details about the donated property, including its description, how it was acquired, its original cost, and its fair market value. If a single non-cash item or group of similar items is valued at over $5,000, a formal written appraisal by a qualified appraiser is required.

How to Claim the Deduction on Your Tax Return

The total amount of your charitable contributions is entered on Schedule A (Itemized Deductions). This form is used to report all itemized deductions, which are then totaled and transferred to your main tax form, Form 1040. Cash contributions and non-cash contributions are reported on separate lines on Schedule A. It is on this schedule that the sum of your giving reduces your adjusted gross income, provided you have chosen to itemize.

If your non-cash donations for the year exceeded $500, you must attach the completed Form 8283 to your tax return. When filing electronically, tax software will prompt you to attach a PDF of the form, while for paper returns, the form must be physically included.