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

  • Taxpayers may deduct charitable contributions up to 60% of their adjusted gross incomes.
  • 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.

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

Understanding Charitable Donations

As noted, U.S. taxpayers normally may deduct up to 60% of their adjusted gross incomes (and up to 100% of AGI under the CARES Act for 2020), but the Internal Revenue Service (IRS) has certain rules restricting the types of donations that can be made and the types of organizations that can receive them.

Its rules define the organizations that qualify as nonprofit groups that are "religious, charitable, educational, scientific, or literary in purpose or that work to prevent cruelty to children or animals."

Even expenses related to charitable contributions may be deducted.

Gifts given directly to individuals, even if done as acts of charity, do not qualify as tax-deductible charitable donations.

Deductible and Non-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.

Keeping Records of Charitable Donations

If you intend to claim deductions for your charitable contributions, keep a record of each donation. A receipt or any written communication from the charity that cites the amount donated, the date, and the name of the organization will do.

Any property donated to a nonprofit organization can be deducted at fair market value.

If items such as works of art or investments that have appreciated in value are being donated, there may additional rules that must be followed for deducting the donation.

Noncash property donations that are worth more than $5,000 will require an appraisal of the property that affirms its value.

All of the rules are detailed in IRS Publication 526, which is typically long-winded. (Just as an example, one section details rules on Expenses of Whaling Captains.)

Nevertheless, you may be surprised at what you can deduct from your taxes in return for your good deeds. Not only cash and goods but the value of your time and expertise may be deductible if you are volunteering it to a worthy cause.