If you’re reading this, you’re most likely a savvy tax planner who wants to maximize your cash and non-cash donations for tax purposes. To be considered tax-deductible donations, your charitable contributions of money or goods must be made to a tax-exempt organization.
According to IRS Publication 526, you can generally deduct up to 60% of your adjusted gross income (AGI). However, if you are contributing to certain fraternal societies, cemetery organizations, veterans organizations, or certain private foundations, your limit is decreased to 20%, 30%, or 50%.
NOTE: The CARES Act eliminated the 60% limit for cash donations to public charities.
Take standard deduction or itemize donations for tax purposes?
When you’re making charitable contributions for tax deduction purposes, it’s important that you plan carefully to ensure you’re making the most sensible decision. Many taxpayers jump to trying to itemize deductions for charitable giving instead of checking their standard deduction amount. This makes a lot of unnecessary work and can cause you to receive a smaller tax deduction that you were eligible to receive.
If you decide to itemize your charitable donations, you must list them on the IRS’ Schedule A form.
Types of charitable contributions
We often think of tax-deductible donations as including only cash donations, but there are actually non-cash donations as well.
Non-cash contributions are gifts of property that you’ve donated to a qualified organization. Some common examples of non-cash charitable donations include:
- Artwork and paintings
Unreimbursed expenses and vehicle mileage for charities
Although you can’t deduct the cost of services or your time spent helping a charity organization, you can deduct your expenses. For example, you can deduct any unreimbursed vehicle mileage that you incur while driving to volunteer opportunities, using either the standard mileage deduction or by calculating your exact mileage using your gas receipts.
Clothing and household items
When donating to charity, it’s critical to note that your clothes and household items must be in good condition.
If possible, get appraisals on the fair market value of your charitable donations so you can add it up and get your total donation amount. Then, you’ll need to complete Schedule A along with your 1040 tax return.
Best practices for charitable contributions
When donating to charity, it’s important that you document your donations (cash and non-cash), and follow other best practices so you don’t turn your charitable giving into a tax crisis for yourself.
Be sure you’re donating to qualified organizations
To be eligible as tax deductions, your charitable contributions must be made to a qualified organization. Qualified means that it’s a tax-exempt charity and has a 501(c)(3) status. You can check whether a charity organization is tax-exempt by using the IRS Exempt Organizations Select Check Tool.
Get a receipt for charitable contributions
Taxpayers can deduct contributions without any charitable donation limit, but you must keep careful documentation.
If you are deducting $500 or more in non-cash donations, you must complete Form 8283 (form here) and attach each donated item’s appraisal to the form, if they collectively total more than $5,000.
You can carry your deductions forward for up to 5 years after which you made the donation. When you are using carry-forwards, however, you must use older donations first, then claim more recent donations. This will let you avoid losing deductions because you passed the five-year limit.
Assess fair market value for donated items
When making donations, it’s important to accurately calculate the fair market value of your clothing, artwork, or other non-cash contributions.
You can use Goodwill’s Donation Value Guide to get an estimate of the fair market value of your
Get tax planning help when you donate!
When you need tax planning help for your state and local taxes, give us a call! We’ll work with you to make sure your contributions are properly documented, whether it’s real estate, clothing and household items, or cash charitable donations.
When you need help with federal, state, or local tax deductions for charitable donations, give us a call!