Charitable giving can provide meaningful support to nonprofits while also offering potential tax benefits for donors.
Understanding the basic rules governing charitable contributions can help donors make informed decisions before making gifts to tax-exempt 501(c)(3) organizations.
This article provides a general overview of how charitable donations may affect your taxes, what documentation donors should retain, and what to know before contributing to a nonprofit organization.
Are Charitable Donations Tax Deductible?
Not all donations are tax deductible.
Generally, donations made to an IRS Section 501(c)(3) tax-exempt organization may be tax-deductible to the donor. There are many types of 501(c) entities. You can check if a nonprofit organization is tax-exempt 501(c)(3) organization by using the IRS’s online tool.
Some organizations may operate as nonprofit corporations under state law, but might not recognized as tax-exempt by the IRS. Other types of 501(c) tax-exempt entities (like membership associations or social welfare groups) generally do not qualify for deductible charitable contributions.
Who Can Claim a Charitable Deduction?
Generally, taxpayers who itemize deductions on their federal income tax returns may claim deductions for qualified charitable contributions to IRS Section 501(c)(3) tax-exempt nonprofits.
The deductible amount may depend on several factors:
- The donor’s adjusted gross income
- The type of contribution made
- Whether the donor received anything of value in exchange for the contribution
Tax laws governing charitable deductions can change, so donors should reach out to their own tax professional about their individual taxes.
What types of donations are deductible?
Different substantiation and valuation rules may apply depending on the type and amount of the contribution.
There are many types of donations –
- Cash
- Credit card contributions
- Checks
- Securities
- Stock
- Real estate
- Vehicle donations
- Donations of clothing or household items
- and more.
What contributions can you deduct?
Charitable contributions of money or property to exempt charitable organizations can be deducted as long as the donor does not receive anything in return.
- Example: a $50 cash donation to a tax-exempt organization would qualify.
Sometimes, donors receive something in exchange for a donation. This might happen during special fundraising events, auctions, or galas. In these situations, only the part of the payment that exceeds the fair market value of the goods or services received may be deductible.
- Example: a donor purchases a ticket to a charity’s gala for $250 and receives a meal and entertainment valued at $100, then the deductible amount is $150.
Charities should provide these fair market value statements.
What contributions are not deductible?
The IRS outlines the types of contributions that are not deductible.
- You cannot get a deduction if you donate funds to a specific person.
- You cannot get a deduction if you donate to a nonqualified organization.
- You cannot get a deduction if you receive a benefit (or expect to receive a benefit) in exchange for your contribution.
IRS Publication 526Â includes additional examples.
When can I deduct the amount of my charitable contribution?
Charitable contributions must be deducted in the year the contribution is made. Most of the time, this is fairly easy to determine. For example, the date your credit card is charged is the date you will use to determine when to report the deduction.
What records do I need to keep in regards to charitable deductions?
The types of records you need to keep depend on the type of charitable deductions.
1. Cash contributions
Cash gifts are those paid by cash, check, electronic funds transfer, debit card, credit card, or payroll deduction. You should keep the following records for cash contributions:
- A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include a canceled check, a bank or credit union statement, or a credit card statement.
- A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
Cash contributions of $250 and over require specific documentation. You must have a written acknowledgment from the tax-exempt organization that lists the amount of the contribution and preferably, the date of the contribution. For more details, see Publication 526. Here is an article on specifics for what needs to be included in that donor acknowledgment.
Payroll deductions require that you keep these records as well:
- A pay stub, Form W-2, or other document furnished by your employer that shows the date and amount of the contribution, and
- A pledge card or other document prepared by or for the qualified organization that shows the name of the organization.
2. Non-cash contributions.
Non-cash donations might include art, securities, real estate, cars, clothing, household items, and more.
Recordkeeping requirements vary by the value of the contribution. You can check Publication 526 for specifics. Depending on the type of donation, the donor might need:
- Appraisals
- Additional IRS forms
- Photographs or supporting records
Generally, the tax-exempt nonprofit organization will describe the donated property in acknowledgment letters, but will not assign a specific monetary value to the donation. Donors and their tax advisors generally are responsible for determining the fair market value of contributed property.
Related articles on Charitable Giving
Year-End Giving – Can I Deduct the Value of My Volunteer Service?
