Charitable donation tax deduction: what are the tax rules around donating to charity?
This article takes a deep dive into charitable donation tax deductions, including what is considered a tax-deductible donation, and how you submit your deduction with your tax return.
Summary
Taxpayers can reduce their taxable income by making charitable contributions.
Tax-deductible charity donations can only be made to specific charities as outlined by the IRS.
The IRS imposes limits on the total amount of charitable contribution deductions.
A financial advisor can help you develop a strategy that helps you reduce your tax burden legally, so you can keep more of your hard-earned money.
What is a charitable donation tax deduction?
A charitable donation tax deduction is a tax-saving strategy used by many Americans.
It allows taxpayers to reduce their taxable income by deducting cash or non-cash donations to charity.
While reducing your taxable income and saving you money, it also benefits your chosen charity.
However, there are multiple rules and regulations surrounding tax-deductible charity donations, which you need to be aware of should you decide to use this tax-saving opportunity.
What is considered a charitable donation?
Tax-deductible charity donations can include cash and non-cash donations.
Cash donations, as you would expect, include donations made by cash, check, bank transfer, online payment services, debit or credit cards, payroll deduction, or a transfer of a gift card that can be redeemed for cash.
Non-cash donations can include a range of items, including:
Goods, such as clothing, donated to charities such as Goodwill or the Salvation Army.
Property.
Vehicles.
While IRS rules don’t let you deduct the value of your time or service, expenses related to volunteering for a qualified organization can be counted as tax-deductible donations.
For non-cash donations, there are special rules that apply. These surround the fair market value of the donated item at the time of the donation.
As rules and deduction limits vary by donation type and what charity you have donated to if you have made non-cash donations, it’s worth doing your research before you complete your tax forms.
How can I claim a charitable contribution deduction?
According to the IRS, generally charity donations can only be deducted if you itemize your deduction.
You can itemize your deductions using a Schedule A (Form 1040), which you send to the IRS along with the rest of your tax return.
It’s also worth considering that the IRS requires you to maintain extensive records of your charitable donations. This includes the donation amount, who it was to, and what type of donation it was.
For cash contributions (regardless of amount), you must maintain a record of the contribution, which can be either the bank record or a written communication from the qualified organization.
This must contain the name of the organization, the amount, and the date of the contribution.
A taxpayer must file IRS Form 8283 with their tax return when they claim more than $500 in total deductions for non-cash contributions.
How much are charitable donation deductions?
When making a charitable donation, there is a limit to how much you can deduct.
Cash donations for tax years 2023 and 2024 are limited to up to 60% of a taxpayer's adjusted gross income (AGI).
Some contributions can be limited to 50%, 30%, or 20% of AGI. This all depends on the type of property and organization receiving the donation.
Alternatively, instead of itemizing their deductions, which is required when taking a charitable contribution deduction, taxpayers could take the standard deduction.
If you opt for the standard deduction, you cannot claim the tax-deductible donations.
If taxpayers choose to take the standard deduction, the limits are as follows:
| 2023 tax year | 2024 tax year | |
|---|---|---|
| 2023 tax year | 2024 tax year | |
| Individual | $13,850 | $14,600 |
| Married filing separately | $13,850 | $14,600 |
| Married filing jointly | $27,700 | $29,200 |
| Head of Household | $20,800 | $21,900 |
Choosing between a standard or itemized deduction will depend on the total amount of your itemized deductible expenses for the year and which one will reduce your tax bill the most.
Who can receive my tax-deductible charitable donation?
For your charitable donation to be tax-deductible, it must be made to or for the use of a qualified organization.
The IRS states the following charities are eligible:
A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes.
A community chest, corporation, trust, fund, or foundation organized or created in the US or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the US. It must be organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.
A church, synagogue, or other religious organization.
A war veterans' organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions.
A nonprofit volunteer fire company.
A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services).
A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes.
A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.
Get expert financial advice
Navigating your taxes and reducing your tax burden can be complex.
If you need help, it's important to seek expert advice.
A good place to start is Unbiased. Here, you can get matched with an independent SEC-regulated financial advisor who can ensure you’re getting the most out of your money and find ways to reduce your tax liability legally.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.