What Are Qualified Charitable Contributions?

A charitable contribution is a donation to a specific type of nonprofit organization. For individuals who itemize deductions on their federal tax returns, these contributions can reduce their taxable income, potentially lowering their tax liability. The Internal Revenue Service (IRS) establishes the rules for deductible donations. This includes which organizations are eligible, what kinds of donations can be made, how much can be deducted, and what records are needed as proof.

Qualified Charitable Organizations

For a contribution to be tax-deductible, it must be made to a qualified charitable organization, which the IRS defines under the Internal Revenue Code. This category is broad and includes groups organized for religious, charitable, scientific, literary, or educational purposes. It also encompasses organizations dedicated to testing for public safety, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals.

Donations made to federal, state, and local governments are also deductible if the contribution is solely for public purposes, such as a gift to a public park or a state university. Contributions to war veterans’ organizations, domestic fraternal societies operating under the lodge system, and certain nonprofit cemetery companies are also deductible. However, contributions to individuals, political parties or candidates, and for-profit entities do not qualify for a tax deduction.

Before making a donation, a taxpayer can confirm an organization’s status. The IRS provides a free online tool, the Tax Exempt Organization Search, which allows users to verify if an organization is eligible to receive tax-deductible charitable contributions. This database also provides other public information, such as the organization’s Form 990 filings.

Types of Deductible Contributions

Contributions can take several forms, with the most common being cash. This includes donations made by check, electronic funds transfer, credit card, or through payroll deductions. These methods provide a clear monetary value and are straightforward to document for tax purposes.

Beyond cash, taxpayers can donate various forms of noncash property. This includes tangible personal property such as used clothing, furniture, and vehicles, as well as capital assets like stocks and bonds. The rules for valuing these items can be more complex than for cash but represent a significant avenue for charitable giving.

Certain things of value are not considered deductible contributions. A taxpayer cannot deduct the value of their time or services, even if they are a skilled professional volunteering their expertise. Personal expenses incurred while volunteering, such as childcare, are also not deductible.

However, some out-of-pocket costs directly related to the volunteer work, like the cost of a uniform or using your car, may be deductible. The IRS allows a deduction for mileage driven in service of a charity, set at a rate of 14 cents per mile. If a donor receives a benefit, such as merchandise or tickets to an event, in exchange for their contribution, the deductible amount is reduced by the value of that benefit.

Contribution Value and Deduction Limits

For noncash property, the deduction is based on the item’s Fair Market Value (FMV). FMV is the price that property would sell for on the open market, representing what a willing buyer would pay to a willing seller when neither is under any compulsion to buy or sell.

The total amount of charitable contributions a taxpayer can deduct in a year is limited by their Adjusted Gross Income (AGI). For most cash contributions made to public charities, the deduction is limited to 60% of the taxpayer’s AGI. This means a person with an AGI of $100,000 can deduct up to $60,000 in cash contributions for the year.

Lower AGI limits of 20%, 30%, or 50% apply to other types of donations, depending on the property being donated and the type of organization. For instance, contributions to certain private foundations, veterans’ organizations, and fraternal societies are subject to a 30% limit for cash and a 20% limit for non-cash assets. If a taxpayer’s donations exceed these AGI limits in a given year, the excess amount can be carried over and deducted in the next five years.

Substantiation and Recordkeeping Requirements

The specific records a taxpayer must keep depend on the amount and type of the donation. For any single cash or noncash contribution under $250, a taxpayer must retain reliable proof, such as a canceled check, a bank or credit card statement, or a written receipt from the organization that shows the charity’s name, the date, and the amount.

When a single contribution is $250 or more, stricter rules apply. The taxpayer must obtain a contemporaneous written acknowledgment from the charitable organization before filing their tax return. This document must state the amount of cash contributed, describe any noncash property donated, and state whether the organization provided any goods or services in exchange. If goods or services were provided, the acknowledgment must include a good-faith estimate of their value.

Additional documentation is required for larger noncash donations. If the total deduction claimed for all noncash contributions exceeds $500, the taxpayer must complete and attach IRS Form 8283, “Noncash Charitable Contributions,” to their tax return.

For a donated item or a group of similar items valued at more than $5,000, a qualified appraisal is required. This formal appraisal must be conducted by a qualified appraiser to substantiate the value claimed on the tax return. A notable exception to this rule is publicly traded securities, which do not require an appraisal.