Tax-deductible donations are gifts of money or goods to an IRS qualified organization or charity like the Giving Center. Tax-deductible donations can reduce your taxable income. To claim a tax-deductible donation on your federal taxes, you may need to itemize on your tax return by filing Schedule A of IRS Form 1040 or 1040-SR.
How much can I deduct?
In general, you may deduct up to 60% of your adjusted gross income (or AGI) via charitable donations, but you may be varied from 20%, 30%, or 50% depending on the type of organization and the type of contribution. For donations to a 501(c)(3) nonprofit charity like Giving Center, the deduction can be up to 50% of your AGI. Additionally, for 2020 tax year the limit on charitable contributions for cash donations has been lifted. This means you may deduct 100% of your AGI for cash donations made to qualified organizations when you itemize. IRS Publication 526 has all the details.
- Limits apply to all donations you make throughout the year, it does not matter how many organizations you make donations to.
- Donations that exceed the limit may also be deducted on your tax returns over the next five years — or until they’re used up — through a process called a carryover.
- For the 2020 tax year, you may deduct up to $300 of cash donations without itemizing. This is called an “above the line” deduction.
How to claim tax-deductible donations on your tax return
- Itemize deductions at tax time. When you file your tax return, you may need to itemize your charitable contributions to claim an IRS tax deduction. This will mean you will have to fill out Schedule A along with your tax return. Once again, for the 2020 tax year, you can deduct up to $300 of cash donations without having to itemize. Giving Center will also prepare IRS form 8283 containing the details of your non-cash donations and mail it out to you.
- You should weigh the costs and benefits ahead of time. Itemizing may take more time than if you just take the standard deduction, and it can also mean more expensive tax software or even create a higher bill from your personal tax preparer. Also, if your standard deduction happens to be more than the total value of your itemized deductions, it may be worthwhile to take the standard deduction instead. If you decide not to itemize, you essentially abandon taking the deduction for what you have donated.
Things to keep in mind regarding tax-deductible donations
Tax-deductible donations have to meet certain IRS set guidelines, or you will not get the tax benefits to accompany your good deed. Here is how to make your tax year a little sweeter.
1. Donate to a qualifying organization
- Unfortunately, your generous charitable contributions will only qualify for a tax deduction if you choose to donate to a tax-exempt organization, this is defined by section 501(c)(3) of the Internal Revenue Code. Examples of qualified institutions include Giving Center, religious organizations, nonprofit educational agencies, the Red Cross, volunteer fire companies, museums, and even organizations that maintain public parks.
- An organization is able to be a nonprofit without 501(c)(3) status, which may make it tricky to ensure your charity of choice will be able to give you a charitable tax deduction.
- You are able to verify an organization’s status with the IRS Exempt Organizations Select Check tool.
2. Document all your contributions
Keep track of your tax-deductible contributions. If you make a monetary contribution, you will need documentation of your donation. Qualified documentation includes a receipt from the charity that showing the amount of the contribution, date, and name of the organization, credit card statements, and bank statements. Even a canceled check will qualify. If you contributed with an automatic deduction from your paycheck through your employer, you must keep copies of your W-2 or pay stubs showing the amounts and the dates of your donations.
You will need additional documentation in the following circumstances:
- Property or cash donations with a value over $250: The IRS requires you to get a letter of acknowledgment from the charity you choose to donate to. The letter must state the amount of cash you donated and if you have received anything from the charity in exchange for your contribution. It must also state an accurate estimate of the value of your donated goods and services. You have to had received the letter of acknowledgment by the date you file your taxes for the year you contributed. Giving Center will do this paperwork for you free of charge just for donating with them.
- If you deduct a minimum of $500 worth of noncash donations: You will have to fill out Form 8283 if you will be deducting at least $500 in donated property. Giving Center will provide you with this form if you choose to make a donation with the charity. Furthermore, you must attach a qualified appraisal of your items to the form if they are worth more than $5,000 in total.
3. Do not miss out on tax deductions for volunteering
IRS rules do not let you deduct the value of your time and services, but expenses related to volunteering for qualified organizations can be tax-deductible donations.
- All expenses must be both directly and solely connected to the volunteer work you did that was not previously reimbursed, personal, living, or family expenses.
- Your tax-deductible donations may include the mileage you drive to charitable events and any volunteer opportunities or mileage you used to take items to a donation site.
- You may deduct your actual expenses using receipts for gas and similar costs, or you may use the standard mileage deduction. For 2020, it is 14 cents per mile when using a vehicle in for service of a charitable organization.
- Keep all of your receipts if you are planning to deduct all of your actual expenses; you may need them if you’re audited.
