DEFINITION of Charitable Contributions Deduction

One of the itemized deductions available for taxpayers who donate to charity. The Charitable Contributions Deduction allows taxpayers to deduct all of their contributions to qualifying charitable contributions of cash and property within certain limitations. These deductions must be listed on Schedule A of the 1040.

BREAKING DOWN Charitable Contributions Deduction

The Charitable Contributions Deduction allows taxpayers who make substantial charitable gifts and take sizeable tax deductions for the year in which their donations are made. The rules for deducting these gifts can be complicated in certain instances. Taxpayers with questions about the deductibility of their gifts should download the instructions for Schedule A off of the IRS website.

In order to deduct charitable contributions, the recipient charity must be a qualified organization under section 170(c) of the Internal Revenue Code. Some of the acceptable charities include:

  • A trust, a community chest, or a foundation created in the United States or its possessions, that’s organized and operated exclusively for scientific, religious, charitable, literary or scientific purposes.
  • United States organization developed to prevent cruelty to animals or children.
  • A synagogue, mosque, church or other religious organization.
  • A volunteer, not-for-profit fire company.
  • A veterans of war organization.
  • A civil defense organization created under local, state, or federal law, including any unreimbursed expenses of civil defense volunteers that are directly connected their volunteer services.
  • A domestic fraternal society that functions under a lodge system. However, a donation to this type of organization is only deductible if the contribution made is ultimately used exclusively for community outreach or other charitable purposes.
  • A nonprofit cemetery, but only if the funds are dedicated to the perpetual care of the cemetery as a whole and are not used to finance a particular tombstone, mausoleum crypt or other marker.

Limitations on Deductions

The IRS imposes caps on the total value of charitable contributions that may be tax deductible in a given year--typically 50 percent of a taxpayer’s adjusted gross income. This applies the majority of charities receiving the donations, including all public charities, all private operating foundations, and certain private foundations that distribute the contributions they receive to public charities and private operating foundations within 2-1/2 months after the year of receiving the donations. A 30 percent limit is imposed on contributions made to certain veteran’s organizations, fraternal groups and cemeteries.