While we believe at Charity Navigator that your primary motivation to donate to charity should be altruism, we also think you should know that great tax benefits exist for those who give. Here are some of the rules and benefits you should know about.
A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. You must itemize in order to take a charitable deduction. Make sure that if you itemize, your total deductions are greater than the standard deduction. If they're not, stick with the standard deduction.
(In 2020 and 2021, tax law did allow for individuals taking the standard deduction to add an additional $300 charitable deduction. As of June 1st, 2022, the IRS has not extended this change.)
A contribution is deductible in the year in which it is paid
Putting the check in the mail to the charity constitutes payment. A contribution made on a credit card is deductible in the year it is charged to your credit card, even if payment to the credit card company is made in a later year.
Check the organization type
Most, but not all, charitable organizations qualify for a charitable contribution deduction. You can deduct contributions only if they are made to or for the use of a qualified recipient. No charitable contribution deduction is allowed for gifts to certain other kinds of organizations, even if those organizations are exempt from income tax. Contributions to individuals, foreign governments, foreign charities, and certain private foundations similarly are not deductible. All organizations rated by Charity Navigator qualify for charitable status, and you can deduct your donations to these organizations, subject to certain limitations. Refer to this update from the Internal Revenue Service.
Rules exist for non-cash donations
If you contribute property owned for more than one year, the value of the deduction is normally equal to the property's fair market value. You have an advantage when you contribute appreciated property because you get a deduction for the full fair-market value of the property. You are not taxed on any of the appreciation, so, in effect, you receive a deduction for an amount that you never reported as income.
You should clearly contribute, rather than throw out, old clothes, furniture, and equipment that you no longer use. However, bear in mind the condition of your donated goods. The IRS only permits deductions for donations of clothing and household items that are in "good condition or better."
If you bring $1,000 in clothes or furniture to Goodwill or the Salvation Army, make sure that you get a receipt. Never throw such contributions into a bin where no receipt is available. And remember that the IRS requires a qualified appraisal to be submitted with your tax return if you donate any single clothing or household item that is not in good used condition or better. Refer to the Internal Revenue Service: Publication 526, Charitable Contributions and Publication 561, Determining the Value of Donated Property.
Maintain proper documentation
If you want to claim a charitable deduction for a cash gift, then you must be prepared to verify your claim. In other words, you cannot deduct the spare change dropped in a charity's collection bucket without the proper documentation. If you are audited, the IRS will only accept one of the following to substantiate a monetary gift: a canceled check, credit card statement, bank statement or a written acknowledgment from the charity.
Donating online via Charity Navigator's Giving Basket helps you fulfill this requirement since all your giving records will be stored in one place enabling you to quickly obtain an annual record of your charitable giving for tax preparation. If you contribute $250 or more, then you must prove to the IRS that you (a) made the donation and (b) you didn't receive anything in return for that donation. Therefore you'll need a receipt from the charity that includes the following information: the charity's name, the value of your gift, the date you made your donation and a statement verifying that you did not receive any goods or services in return for your gift.
Valuing donated vehicles
Although a law implemented in 2005 attempted to crack down on taxpayers who were overvaluing donated vehicles, the government reports that many taxpayers still inflate the value of such donations. As a result, the IRS continues to take a close look at such deductions. If you donated a car worth more than $500, then you can only deduct the amount the charity received from the sale of your car. You can use the receipt from the charity to substantiate your claim. Do not attempt to use the fair market value unless one of the following conditions apply: (1) instead of selling the vehicle, the charity keeps and uses it, (2) the charity makes improvements to the car before selling it, (3) your car is sold at a discounted price to a person with a low income, (4) or if the car is worth less than $500. See our tip sheet for more guidance on donating vehicles.
IRA charitable rollover offers tax
The IRA Charitable Rollover allows individuals who are 70 1/2 years old to donate up to $100,000 to charitable organizations directly from their IRA, without that donation being counted as taxable income when it is withdrawn. To qualify, contributions must come from a traditional IRA or Roth IRA, and they must be made directly to a qualified charitable organization. Additionally, the donor may not receive goods or services in exchange for the donation, and they must retain a receipt from each charity to which a donation is made.
Remember, it's always better to give than receive. The glory of charitable donations is that you give and receive at the same time.
The above summary of certain federal income tax laws is provided for informational purposes only. We urge you to consult your tax advisor for the federal, state, and local tax consequences of a charitable contribution.