The charity tax deduction is a heart-warming way to keep your pockets full, if you itemize deductions. However, there are some restrictions that apply and some rules you should know.

  • Logging Miles
    When you volunteer for a qualified charitable organization, you can deduct gas and oil costs for travel time. You can either figure out the exact amount you paid to go to and from volunteering, or you can deduct the template amount of 14 cents per mile.

    Qualified charity organizations include most non-profits, but you can see the full list of categories in the Internal Revenue Service Publication 526.

  • Clothing
    When you give away your clothes or housewares (pots and pans), they have to be in good/usable condition. There isn't an assigned limit for how much you can declare per item donated – unless the charity wrote the value of your item(s) on your donation receipt - but you do want to be careful to declare a reasonable amount for each item donated. You never know when the tax man is looking.

    However, if the value of any single item is more than $500, and the item is not in good usable condition, you will need a written appraisal on your item.

  • Collectibles and Other Pricey Items
    If you are donating collectibles and are unsure of the value, it's a good idea to have an appraisal done - the baseball cards you've had for 15 years could be worth hundreds more than you thought. (For more on pricing collectibles, see Contemplating Collectible Investments.)
  • Your Old Fridge
    Large appliances do not have a maximum claimed value. However, if you are claiming a value over $500, the appraisal rule still applies. Make sure you have at least an inkling of the value before you shell out the cash for an appraisal.
  • Attending a Charity Event
    Even the most fun charity event can result in a tax deduction. However, there is a catch. You can only deduct the amount you pay above the fair market value for the event.

    But how do you determine the fair market value of a charity event? It's not like you can go to a ticket vendor and find the event for a non-charity price. Think about what is included in the evening, such as entertainment, food and maybe a door prize you were lucky enough to win. Your estimate doesn't have to be exact - you just need to remember your reasoning for how the fair market value was determined.

  • Bidding on an Auction
    Calculating your tax deduction when buying auction items from a qualified charity works similarly to deducting your attendance at a charity event. But, determining fair market value is easier, since you have an item with a verified value.

    For instance, if you won a trip to Tahiti worth $5,000 and you paid $6,000, you could deduct $1,000. However, if you paid $4,000, you wouldn't earn a tax deduction, since you bid under fair market value.

  • Giving Away Your Old Car
    Giving your car to charity will rarely net more money than selling it will. However, it's financially better to give your car to a charity that will give your vehicle to someone in need, rather the charity selling it. Why?

    Let's say you decide to donate a car with a fair market value of $6,500, and the charity sells your car for $1,000. This $1,000 is the deduction amount you can claim on your return – not $6,500. You could lose up to $5,500 in tax deductions from the donation.

    In order to make sure the charity of your choice will give your car away rather than selling it, get a written commitment from the charity. (Learn more about vehicle donation deductions in Non-cash Contributions Rules Could Cut Returns.)

Ways that Won't Work
Not every charitable act is tax deductible. For instance, giving to most foreign charities, for-profit groups or donating your time or blood to a blood bank aren't tax deductible.

Conclusion
Donating time, stuff you no longer use or money to charity is a great way to earn a tax deduction. However, there are rules you need to follow to optimize the deduction amount. Estimate the value of your giving as accurately as possible, and keep track of every item you donate. A small amount of time spent studying charity tax deduction rules will net a larger tax refund for you, and help the people aided by the charity you choose. (For further reading, checkout In A Cash Crunch? Hold A Yard Sale, Deducting Your Donations, Money Saving Year-End Tax Tips, and 6 Sources For Free Tax Help.)

Related Articles
  1. Taxes

    What IRS Form 990 Tells About a Nonprofit

    Want a picture of an organization's activities? This annual form, open to the public, sums up everything from salaries paid to missions accomplished.
  2. Personal Finance

    How To Get That Entry-Level Financial Analyst Job

    Landing a job as a financial analyst takes study, strategy and a lot of hard work. Here's how to hone your competitive edge.
  3. Taxes

    Top Reasons to File Separately When Married

    Most of the time, it makes sense for couples to file their taxes jointly. Except for these possible exceptions...
  4. Taxes

    What IRS Form 1023 Is Used For

    To be treated as a tax-exempt organization, start by filling out this form.
  5. Personal Finance

    Does It Make Sense to Go to College in Europe?

    If you're deciding whether to get a degree abroad, first do your research and talk to alumni who have completed the same program.
  6. Taxes

    Late with Your Taxes? Grab IRS Form 4868

    Fill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
  7. Taxes

    What IRS Form 8949 Is For

    Selling a painting or that lake property? Disposing of your fossil fuel stocks? You need to know about this IRS form.
  8. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
  9. Fundamental Analysis

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
  10. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
RELATED TERMS
  1. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  2. International Financial Reporting ...

    A set of international accounting standards stating how particular ...
  3. Days Sales Outstanding - DSO

    A measure of the average number of days that a company takes ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Surplus

    The amount of an asset or resource that exceeds the portion that ...
  6. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  3. Are credit card rewards taxable?

    Credit card rewards are taxable in the United States some of the time. The Internal Revenue Service (IRS) classifies credit ... Read Full Answer >>
  4. Are Social Security benefits taxable after age 62?

    Eligibility to collect Social Security benefits begins at age 62. Many seniors, to collect larger benefit amounts, wait until ... Read Full Answer >>
  5. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  6. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!