Giving is the foundation of a strong community. When we participate in good causes by donating money or resources, we provide generous support on which many people may depend.
But your philanthropic efforts don’t just benefit those in need—they may also offer tax benefits in return. Depending on the donation and organization type, you may actually be able to deduct your gifts. Use this guide to help you better understand your philanthropic options and even get ahead on next year’s filing season.
What is a donation?
The answer to this question is more intricate than you might expect. While you may perceive a donation as a generous gift aimed to help those in need, the government interprets it a bit differently. For IRS purposes, a charitable donation is any offering of money or goods to an officially recognized, tax-exempt organization. In other words, not all contributions are tax-deductible, nor are all parties you may donate to recognized by the IRS. And some categories of giving are broadly disqualified from earning you deductions altogether.
You can only claim a certain percentage of your taxable income as a deduction, which ranges from 20 to 60 percent, depending on the organization and the donation type. However, if you exceed this limit in one year, you can typically carry over the remaining amount into the five subsequent tax years or until the donation total is fully deducted.
If you’re interested in deducting your philanthropic gifts, visit the IRS’s tax-exempt organization search to identify qualifying organizations. (This is also an excellent way to verify that a service is a legitimate charity since parties must file paperwork and undergo government scrutiny to earn tax-exempt status.)
Getting your deduction
Tax savings, like taxes in general, aren’t automatic, so if you want to deduct an altruistic donation, you will need to provide the proper documentation and submit exact information. Take these steps to ensure you file correctly.
Always confirm that you get a receipt for direct monetary donations. Should your contribution exceed $250, you will need to request a “letter of acknowledgment” that records the donation amount, any gifts you received in return, and the approximate value of said gifts.
Note that you usually cannot deduct a donation for which you receive goods or a service in return because the IRS deems this a purchase, not a charitable contribution. However, you may qualify for a deduction if the letter of acknowledgment proves that your gift is valued at less than the amount you donated. So if you donate $100 to the American Cancer Society and receive a branded tote bag in return, you should still qualify for a tax deduction provided that you subtract the value of the merchandise from your donation amount.
If you contribute goods to a qualifying organization—delivering pet-care supplies to an animal shelter, for example—request a receipt that records your donation in detail, and save it alongside the receipts for your original purchase of these goods. Doing so will help you document the exact monetary value of your contribution. Should you donate goods or property that exceed $5,000 in value, you will need to obtain an independent written appraisal that estimates their value.
You may also be able to file deductions for expenses related to volunteer work, such as if you travel outside your state to help out at a food bank after a major natural disaster. You will need to keep receipts and bank statements for all affiliated purchases, including for travel and dining, to make accurate deductions.
Donating assets such as stocks may earn you a deduction as well. You can increase your savings by gifting shares directly to an organization rather than cashing them out first, which will help you avoid the capital gains tax. For more advice on donating and filing deductions for such assets, speak to a financial professional.
When you file your annual tax return, itemize your donations on a Schedule A and attach it to Form 1040. Enter your calculations in boxes 11 through 14, marked “Gifts to Charity,” and follow the directions down to the letter. To file donations of goods valued over $500, you will need to fill out Form 8283 and attach an appraisal with your return if it exceeds $5,000. Consider submitting copies of your receipts to an accountant if you seek their assistance, and save copies in case you are audited. Alternatively, you may decide to take the standard deduction—a fixed amount you are allowed to deduct every year—if that total is greater than the amounts you itemized on Schedule A and Form 8283.
Do not expect a full refund of your donation. Your credit will be anywhere from 15 to 33 percent of your donation amount, depending on your tax bracket and the value of your contributions.
Exceptions to the rule
In certain cases, you probably will not qualify for a tax deduction no matter what documentation you record or how you file. These are two of the most common examples.
Giving to an election campaign, lobbying organization, or other political group will generally not earn you a deduction. However, donating to a civic body, such as a public library, may be deductible. This is all about intent: If the IRS determines that your donation is solely for benevolent purposes and doesn’t intend to influence legislation, you may earn a deduction.
Donations of money or goods to an individual are also excluded, so transferring funds to a loved one to help them pay their rent or giving cash to an unhoused person are nondeductible gifts. This will probably apply even if you give via an organized donation service such as Patreon or GoFundMe. In some situations, the income for the recipient may even be taxable instead.
For more clarity and ongoing guidance on how to deduct the value of your charitable contributions, consider speaking with a financial professional or accountant. They can help you maximize your benefits when you support a variety of beneficial organizations.