The short answer is yes; charitable donations to qualified organizations can be tax deductible. However, there are some stipulations and reporting requirements.
A charitable donation is a contribution of cash or property made to an organization on the Internal Revenue Service’s Tax Exempt Organization list in which you get no goods or services in return. To qualify for tax-exempt status, an organization applies to the IRS. Once approved the organization can accept donations that might be tax deductible for the contributor.
What Charitable Donations Are Tax Deductible?
If you give money or property to a tax-exempt organization, the amount donated might be eligible as a deduction on annual income taxes. The donation cannot result in receiving goods or services in return. For example, purchasing tickets to a non-profit organization's benefit dinner would not qualify because the donor is receiving a meal in return.
Some types of organizations that might be listed as tax-exempt organizations include:
- Religious organizations
- Public parks and recreation
- Nonprofit schools and medical facilities
- Federal, state, and local government
- Goodwill, Red Cross, Salvation Army, and other similar organizations
- Veterans organizations
In addition to the above contributions, expenses for a student living with you through an approved exchange student organization might qualify as a tax-deductible contribution.
Expenses you incur when volunteering for an approved organization can also sometimes be deducted.
The Internal Revenue Service has a complete list of the types of organizations where charitable donations might be tax deductible.
What Donations Are not Tax Deductible?
There are many examples of contributions that are not tax deductible even if you make them to a tax-exempt organization.
- Tuition made to a private or parochial school
- Raffle or lottery tickets
- Homeowners associations
- Donations to an individual
- Lobbying organizations focused solely on policy change
- Civic, social, and sports clubs
If you are unsure, a tax professional can help you distinguish what donations might be tax-deductible.
Is There a Limit on Tax-Deductions for Charitable Donations?
The charitable contribution amount that can be deducted on yearly taxes usually ranges from 30% to 60% of the individual’s adjusted gross income (AGI). In 2021, the deduction amount for qualified donations can be up to 100% of a taxpayer's AGI. It is important to meet with a tax advisor to ensure the correct deduction thresholds are being met for the year you are filing.
How Are Charitable Donations Deductions Reported?
In some years, charitable donations cannot be deducted on a return with the standard deduction. However, in 2021 individuals can deduct up to $300 for cash contributions made to a qualified organization. Married couples filing jointly can deduct up to $600 of qualified cash contributions.
For itemized returns, charitable contributions are deducted using schedule A of Form 1040.
Non-cash donations with a value over $600 are also reported on IRS Form 8283. The amount deducted is the fair market value of the donated property.
It is important to keep receipts and records of monetary and non-cash donations
There are many guidelines for determining what charitable donations might be tax deductible, and it is best to meet with a tax advisor for a consultation.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
