Charitable Donation

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.

Key Takeaways

  • The IRS allows taxpayers to deduct donations of cash and property to qualified charitable organizations.
  • In most years, taxpayers may deduct charitable donations of up to 60% of their adjusted gross incomes; for 2020 and 2021, that amount is 100%.
  • Charitable donations to individuals, no matter how worthy, are not deductible.
  • Donations totaling more than $300 in a year must be itemized.

In the U.S., donations can be deducted from the federal tax returns of individuals and companies making them.

Traditionally, U.S. taxpayers are able to deduct up to 60% of their adjusted gross incomes annually. However, as a result of the CARES ACT, the deductible portion of charitable donations increased up to 100% of AGI for 2020 and 2021. Taxpayers deducting more than $300 in charitable contributions must use Form 1040 or Form 1040-SR and itemize their deductible contributions on a Schedule A form.

Understanding Charitable Donations

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. According to 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, 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 to their volunteer services
  • A domestic fraternal society that functions under a lodge system, but the donation is only deductible if it is used for community outreach or other charitable purposes
  • A nonprofit cemetery, but only if the funds are used to care for the cemetery as a whole versus a particular tombstone, mausoleum, crypt or other marker

Under the CARES Act, taxpayers who do not itemize their deductions and take the standard deduction instead are allowed up to a $300 deduction for charitable cash contributions in 2020 The Consolidated Appropriations Act extended this deduction to 2021. Married couples filing jointly who don't itemize can deduct up to $600 of donations in 2021.

Charitable contributions for taxpayers who itemize their deductions must be listed on Schedule A of Form 1040. As noted earlier, taxpayers who do not itemize deductions can deduct up to $300 for the 2020 and 2021 tax years—for 2020 it was permitted as an "above-the-line" deduction.

Expenses related to charitable contributions may be deducted (see "Non-Cash Donations," below). However, gifts given directly to individuals, even if done as acts of charity, do not qualify as tax-deductible charitable donations.

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. For tax purposes, 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.

Non-Cash Donations

Cash gifts aren't the only 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. One rule: Non-cash property donations that are worth more than $5,000 will require an appraisal of the property that affirms its value.

Another difference the amount of non-cash donations that is deductible: 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. For example, capital gains property donations, such as appreciated stock, are limited to 30% of your AGI.

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." Not eligible for deductions: "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 that they expire and you can no longer use them.

Keeping Records of Charitable Donations

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 in 2021 is 100% of gross adjusted income (AGI). 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 the charitable deductions. But for the 2021 tax year, taxpayers who take the standard deduction are allowed to deduct up to $300 for charitable contributions in 2021. Married couples filing jointly can deduct up to $600.

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.

Article Sources

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  2. Nolo. "New Rules for Charitable Contribution Deductions Under the CARES Act." Accessed Dec. 11, 2021.

  3. Internal Revenue Service. "Topic No. 506: Charitable Contributions." Accessed Dec. 11, 2021.

  4. IRS. "Publication 526: Charitable Contributions." Pages 5-6. Accessed Dec. 11, 2021.

  5. Internal Revenue Service. “Publication 526 (2020), Charitable Contributions.” Accessed Dec. 11, 2021.