When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations could add up to a sizable tax deduction if you itemize on IRS Form 1040, Schedule A. If a taxpayer is donating to a qualified charity, this is a very important thing to get right.
You can deduct donations you make to qualified charities. This can reduce your taxable income, but to claim the donations, you have to itemize your deductions. Claim your charitable donations on Form 1040, Schedule A.
What are Qualified Charities?
- Nonprofit religious group
- Nonprofit educational group
- Nonprofit charitable group
If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
Here are a few tips to ensure your contributions pay off on your tax return:
- Contributions must be made to qualified organizations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.
- You cannot deduct the value of your time or services. Nor can you deduct the cost of raffles, bingo or other games of chance.
- If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
- Donations of stock or other property are usually valued at the fair market value of the property. Special rules apply to donation of vehicles.
- Clothing and household items donated must generally be in good used condition or better to be deductible.
- Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.
- To claim a deduction for contributions of cash or property equaling $250 or more you must obtain a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document from the organization may satisfy both the written communication requirement for monetary gifts and the written acknowledgment requirement for all contributions of $250 or more.
- If you claim a deduction of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return.
- Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser.
- Contributions made for relief efforts in a Midwest disaster area receive special benefits. For more information, see Publication 4492-B, Information for Affected Taxpayers in the Midwest Disaster Areas.
10 Tips for Deducting Charitable Contributions
For more information on charitable contributions, check out Publication 526, Charitable Contributions, which is available below or by calling 800-TAX-FORM (800-829-3676).
Contributions are deductible in the year made. That means donations charged to a credit card before the end of 2014 are deductible in 2014, even if the credit card bill isn’t paid until 2015. Also, checks mailed on or before Dec. 31, 2014 are deductible for 2014. Many taxpayers aren’t even aware that there are limits on charitable contributions but they do exist. If you contribute more than 20% of your adjusted gross income (AGI, found on line 37 of your form 1040), pay attention to limits. The specific limitations can be fairly complicated – with numerous exceptions – but here are some quick rules of thumb: you can deduct appreciated capital gains assets up to 20% of AGI; you can deduct non-cash assets worth up to 30% of AGI; and you can deduct cash contributions up to 50% of AGI. If you exceed those limits, you can carry the deduction forward for five years.
Additional IRS Resources on Charitable Deductions:
- Tax Topic 506 – Charitable Contributions
- Exempt Organizations Select Check tool
- Interactive Tax Assistant tool
- Filing Your Taxes
- IRS Tax Map