Are charitable donations tax deductible?
Well, the truth is you have to do more than just give money away for it to count toward a charitable donations tax deduction. That’s because some of what you give away may count, and some may not, according to the Internal Revenue Service (IRS).
Then there’s the write-off process itself, which looks a little different depending on the amount you give and how you give it. Plus, sometimes just because you can write it off doesn’t mean you should.
Here’s how to make sense of it all so you can list out the most deductions possible before filing your taxes.
What qualifies for a charitable donations tax deduction?
Donations to 501(c)(3) organizations are definitely tax-deductible. A 501(c)(3) is a non-profit with tax-exempt status, covering qualifying charitable and religious organizations.
In general, you can deduct donations to the following:
- Non-profit charitable organizations, like the American Red Cross
- Churches, temples, and other religious organizations
- Non-profit educational organizations and hospitals
- Federal, state, and local governments (if funds are intended for public purposes only, like maintaining public parks)
- Fraternal societies (not applicable to dues or fees)
You can also deduct some expenses associated with volunteer work for a qualifying organization (e.g., mileage).
What doesn’t qualify for a charitable donations tax deduction?
Donations to 501(c)(4) organizations are generally not tax-deductible. Civic and social welfare organizations fall under this section.
There are a couple of exceptions, though, such as veterans’ organizations and volunteer fire departments.
You cannot deduct donations to the following:
- Individuals or families (unless your donations are going through a qualifying organization)
- Political organizations or candidates
- Employee associations
- Sports clubs
- Raffles, bingo, or lottery tickets purchased as part of a fundraiser
- Foreign organizations
- Donations totaling more than 50 percent of your income (in some cases it’s limited to 20 or 30 percent)
- Pledged donations that you have yet to actually pay for
If you’re not sure about its status, ask the organization if donations to them are tax-deductible.
You can also try the IRS Exempt Organizations Select Check tool to learn more about an organization’s tax status.
Remember to keep records of your donations
For some cases, a receipt will do, while for others you’ll need more than that.
Here’s how to keep track of what kind of records you’ll need to provide when filling out your charitable donations tax deduction area.
If your donation is valued under $250…
All you need is a receipt or bank record stating the name of the organization, the date the donation was made, and the dollar value of the donation. A canceled check will also do.
If your donation is valued at $250 or more…
You’ll need a written acknowledgment from the organization stating the date and amount contributed, or description of the donated item.
The organization must also acknowledge whether or not you received goods or services in return for the donation. If you did receive something in return, the must provide a description of those goods or services and their value.
It is possible that one document can satisfy both requirements for donations of $250 or more. But if you are donating property valued at greater than $5,000 (or $500 for certain clothing and household items), you will likely need an appraisal.
How to complete Schedule A on your tax return
You can only deduct charitable donations if you itemize, which is done by completing and attaching Schedule A to Form 1040.
In the Gifts to Charity section, you’ll see a line for donations made by cash or check and a separate line for noncash donations for you to fill out. Please note that for noncash donations with values greater than $500, you’ll need to complete and attach Form 8283 as well.
There’s also a line indicating whether you have qualifying contributions that can be carried over from the previous year.
When figuring out the value of your donations, make sure you keep a couple of things in mind. For instance, if you received goods or services in exchange for your donation, you can only deduct the amount that is greater than the value of the goods or services you received.
So for example, if you gave $100 and received something valued at $25, you can only deduct $75. Make sure you review Schedule A instructions for exceptions.
And when you’re figuring out the value of noncash donations, base your estimate on the fair market value at the time given.
Does itemizing save you more than a standard deduction?
Always compare the total itemized deductions you can take on Schedule A to the standard deduction you may potentially receive. You may find it’s not worth claiming your charitable donation tax deduction because you’ll save more with the standard deduction than by itemizing.
Standard deductions in 2016 will look like this:
- Single – $6,300
- Married Filing Separately – $6,300
- Married Filing Jointly – $12,600
- Head of Household – $9,300
Also, Gifts to Charity is just one of several expense categories you can itemize in Schedule A.
Others include medical and dental expenses, state and local income taxes, mortgage interest and property taxes, casualty and theft losses, some job expenses, and other miscellaneous deductions.
At the end of the day, there are plenty of opportunities for itemized deductions to add up, especially those going toward a charitable cause.