What Is a Charitable Donation?
A charitable donation is a gift of cash or property made to a nonprofit organization to help it accomplish its goals, for which the donor receives nothing of value in return. In the U.S., donations can be deducted from the federal tax returns of individuals and companies making them.
- The IRS allows taxpayers to deduct donations of cash and property to qualified charitable organizations.
- In most years, charitable donations must be itemized in order to be deducted; for 2021, however, those who don’t itemize may still deduct up to $600 of charitable donations.
- In most years, taxpayers may deduct charitable donations of up to 60% of their adjusted gross incomes; for 2021, however, that amount is 100%.
- Charitable donations to individuals, no matter how worthy, are not deductible.
Rules for Charitable Giving
The Internal Revenue Service (IRS) restricts the types of donations that can be made and the types of organizations that can receive them. In order to deduct charitable contributions, the recipient charity must be a qualified organization in the eyes of the IRS. Acceptable charities include:
- A trust, community chest, or foundation created in the United States that is operated exclusively for charitable, religious, scientific, literary, or educational purposes
- A U.S. organization developed to prevent cruelty to animals or children
- A synagogue, mosque, church, or other religious organization
- A volunteer nonprofit 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 to their volunteer services
- A domestic fraternal society that functions under a lodge system (only deductible if the donation is used for charitable purposes)
- A nonprofit cemetery (only deductible if the funds are used to care for the cemetery as a whole versus a particular tombstone, mausoleum, crypt, or other marker)
Gifts given directly to individuals, even if done as acts of charity, do not qualify as tax-deductible charitable donations.
2021 Pandemic Tax Changes
There have been some one-time changes to the tax rules for 2021 prompted by the COVID-19 pandemic. For example, single taxpayers who take the standard deduction rather than itemize are allowed up to a $300 deduction for charitable cash contributions ($600 for those married filing jointly), and the deductible portion of cash charitable donations for all taxpayers is 100% of AGI (instead of 60%).
Is Your Whole Gift Deductible?
As part of their fundraising efforts, charitable and nonprofit organizations frequently offer some service or benefit in return for donations. This might be branded merchandise, tickets to an event, or a year’s free entrance to a museum. Only the amount of the donation that exceeds the fair market value of the received benefit can be deducted.
In other words, if the tickets to a charity baseball event are priced the same as a standard ticket to a game, that expenditure could not be deducted. If the tickets were priced at a premium, with the remainder going to the charity, that portion of the expenditure could be claimed as a charitable donation.
Cash gifts aren’t the only kind of tax-deductible donation. Any property donated to a nonprofit organization can be deducted at fair market value. However, items such as works of art or investments that have appreciated in value may be subject to additional rules for deducting the donation. Non-cash property donations that are worth more than $5,000, for example, require an appraisal of the property that affirms its value.
You can also donate certain expenses that you incur while volunteering for a qualified charitable organization. Your expenditures must be, as the IRS puts it, “unreimbursed; directly connected with the services; expenses you had only because of the services you gave; and not personal, living, or family expenses.”
If you cannot deduct all of your charitable donations in a year because you have hit the percentage limit, you can carry them forward for up to five years—after which they expire and you can no longer use them.
Charitable Gift Limits
Deductions for cash contributions are limited to 60% of your AGI. Non-cash contributions can be limited to 50%, 30%, or 20% of your AGI, depending on the type of property and organization receiving your donation. Capital gains property donations, such as appreciated stock, for example, are limited to 30% of your AGI.
How to Claim Charitable Donations on Your Taxes
If you intend to claim deductions for your charitable contributions, keep a record of each donation. This is required for donations of $250 or more. For donations that are less than $250, the IRS requires that you keep canceled checks or other records. A receipt or any written communication from the charity that cites the amount donated, the date, and the name of the organization will do.
What Is the Charitable Donations Deduction Limit?
For taxpayers who itemize their deductions, the limit for cash donations is 60% of gross adjusted income (AGI). (This limit has been raised to 100% just for 2021.) For donations of property, the deduction limit is 50%, 30%, or 20% of your AGI, depending on the type of property donated.
Can You Take Charitable Donation Deductions Without Itemizing?
Usually, you need to itemize to take charitable deductions. However, for the 2021 tax year only, single taxpayers who take the standard deduction are allowed to deduct up to $300 for charitable contributions ($600 for married couples filing jointly).
What Is a Qualified Charitable Organization?
The IRS recognizes donations to organizations that qualify as 501(c)(3) organizations as tax-deductible for donors. Three common categories are charitable organizations, churches and religious organizations, and private foundations.