Hands taping a ‘donation‘ sign to a box

When you make a donation to your favorite charity, taxes probably aren’t on your mind. But the benefit of a charitable contribution may go beyond positively impacting the charity you’re supporting. Your contribution may benefit your bottom line at tax time. These guidelines for deducting charitable gifts can help.  

Give to qualified charities

To gain a tax benefit for charitable donations, your gift must have been to a qualified charity. These include certain types of tax-exempt nonprofit organizations (see definition under qualified organizations), and even government agencies for certain purposes, but do not include gifts to individuals, politicians or most political organizations. The IRS’ Tax Exempt Organization Search tool lets you look up specific organizations to see if your donation qualifies for a tax deduction.

Know if you should itemize deductions

In 2020, under the CARES Act (the coronavirus relief law), taxpayers are allowed a $300 deduction for charitable giving to qualified organizations whether they are using the standard deduction or itemizing deductions. But beyond that special allowance, to benefit at tax time for your charitable gifts, you’ll have to itemize your deductions.

For that to be worth your while, the total of your itemized deductions — things like charitable giving, interest paid on your mortgage, some portion of state taxes, qualified medical expenses, etc. — needs to be greater than the new, increased standardized deduction for your filing category.

But there’s good news if you do itemize: As of 2020, you are allowed to deduct up to the amount of your adjusted gross income (AGI) in charitable gifts.

Keep good records

The IRS won’t take your word when looking at deductions. You must keep proper records of donations — bank statements, credit card statements, cancelled checks or written letters from the charities or organizations. If you received some economic benefit from your gift, like a dinner, the charitable organization should be able to tell you what portion of your donation is tax deductible.

Payroll deductions that fund charitable gifts must be documented as well. Save paycheck stubs, W-2s and any other supporting documentation from your employer.

Donations of $250 or less can be supported by receipts, cancelled check or statement. Donations of money or property of $250 or more must be supported by a letter from the charity that includes the organization’s name, the amount of the donation and the date of contribution.

Check condition of property gifts

Clothing and household items, such as furniture, appliances, electronics, furnishings and linens, must be in good condition if claimed for deductions. If you have any questions about your items, the charity can assist you.

Non-cash donations of more than $500

Cars, boats and other expensive non-cash property are often given to qualified charities. For such gifts, you can claim the fair market value of the item at the time it was given. If you’ve donated non-cash property of more than $500, you must file an IRS Form for Noncash Charitable Contributions. Remember that for any donation valued at more than $250, you’ll also need to submit a letter from the charity.

The advice provided is for informational purposes only. Contact a tax advisor for additional guidance. 

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