Giving Wisely: IRS Rules for Charitable Donation Tax Deductions

The holiday season often inspires generosity, with many individuals choosing to give back to their communities through charitable donations. While these contributions can make a significant difference for those in need, they can also provide valuable tax benefits. However, to claim the charitable donation tax deduction, it’s crucial to follow IRS rules carefully.

Give to Eligible Charities Only
To qualify for a tax deduction, your donation must be made to a recognized 501(c)(3) nonprofit organization. Contributions to individuals, political campaigns, or certain social clubs are not deductible. The IRS maintains a searchable database of qualified organizations to ensure your chosen charity meets the requirements.

Itemize Your Deductions
You can only claim a charitable donation deduction if you itemize your deductions on Schedule A of your federal income tax return. If you take the standard deduction, you won’t be able to deduct your donations.

Documentation is Key
Proper documentation is essential for claiming your deduction:

• For cash donations of any amount, you need a bank statement, receipt, or written acknowledgment from the charity.
• For donations of $250 or more, you must obtain a written acknowledgment from the charity that includes the donation amount and a statement confirming you didn’t receive goods or services in return.
• For non-cash contributions, such as clothing or household items, you must provide a description of the items and their fair market value. If the total exceeds $500, you’ll need to file Form 8283.

Timing Your Donations
To qualify for a deduction in the current tax year, donations must be made by December 31. This applies to both cash and non-cash contributions. If you’re donating by check or credit card, the date of the transaction counts, even if payment is processed later.

Limits on Deductions
The IRS limits the total amount you can deduct in a given year to a percentage of your adjusted gross income (AGI), typically 60% for cash donations. Excess amounts can usually be carried over to future tax years.

Consult Your Financial Advisor
Charitable giving is a meaningful way to make a difference, but navigating the tax implications can be complex. Consult your financial advisor to ensure you maximize your tax benefits while supporting the causes you care about most. Give us a call, and we’ll help you with thoughtful planning that can make your generosity even more impactful.