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Charitable Contributions

Updated for Tax Year 2022 • December 8, 2022 07:38 AM


OVERVIEW

Learn how to get the biggest tax savings when making charitable contributions of cash or checks, household goods, cars or appreciated property.


For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.


 

Paper Saying Give Back

Key Takeaways

• To qualify as a tax deduction, your charitable contribution needs to be given to a 503(c) organization. These are listed online at the IRS Exempt Organizations Select Check.

• You can donate property instead of cash, but if the value of the property exceeds $500, you'll need to complete Form 8283 and include it with your tax return.

• If you plan to donate property worth more than $5,000 ($10,000 for stock in closely-held firms), you'll need to get a formal appraisal by an appraiser who meets IRS guidelines.

• Volunteer work you perform for a qualifying organization may generate a deduction, but not for the value of your time. You can only deduct out-of-pocket expenses, including the miles you drive, parking fees, tolls, materials, and supplies.

Choose the right organization

In order for your donation to be deductible, it must go to a nonprofit group that is approved by the IRS. Most often, these are charitable, religious or educational organizations, though they can also be everything from your local volunteer fire company to a group for the prevention of cruelty to animals.

  • If you're not sure whether the group you want to help is approved by the IRS to receive tax-deductible donations, check online at IRS Exempt Organizations Select Check.
  • This site allows you to enter an organization's name and location to instantly find out if it qualifies.

Make sure it counts

To write off any cash contributions, no matter how small, you need a canceled check, bank record or a receipt with the charity's name and donation amount. That means that putting cash in the church collection plate or the Salvation Army bucket is a no-no if you want to be able to take a deduction for it.

As with all deductions, timing is everything. You can take the deduction for your contribution in the year that you make it.

  • For example, if you mailed a check to your favorite charity on December 31, you can write it off on that year's tax return.
  • If you charge the donation on a credit card, the write-off is claimed in the year the charge is made, even if you don't pay the credit card bill until the following year.
  • But a pledge to make a donation is different: Because it's only a promise to make a future donation, there's no deduction until you actually follow through.

Donations are limited

There's also a limit on how much you can deduct. The basic rule is that your contributions to qualified public charities, colleges and religious groups generally can't exceed 60 percent of your Adjusted Gross Income (AGI) (100% of AGI in 2020 for qualified charities).

  • The caps are a bit lower for gifts to other types of nonprofits. When it comes to gifts of appreciated property, the limit drops to 30 percent of AGI.
  • If these restrictions limit your write-off in the year of the gift, the excess deduction carries over to the next year.

Also, keep in mind that you can't write off a contribution to the extent that you get something in return.

For example:

  • If you buy a $50 ticket to a fundraising dinner at a church, but the cost of the dinner is $20, you can deduct $30.
    • $50 donation - $20 return = $30 deduction
  • For donations of more than $75, the nonprofit must give you a written statement telling you the value of what you received in return and reminding you that you can't deduct that portion of your contribution.

There's also a special rule for folks who donate to colleges and universities and receive the right to buy tickets to school athletic events: They can deduct 80 percent of their donation.

Appreciated property

Cash may be king, but if you want a really big tax saver, your best bet may be a donation of appreciated property—securities, real estate, art, jewelry or antiques.

  • If you have owned the property more than a year, you can deduct its full fair market value and escape income tax on the appreciation.
  • For property held one year or less, IRS only allows you to claim a deduction on the price you paid for it.

Let's say you own stock that you bought many years ago for $1,000 that is now worth $10,000, and that you intend to make a $10,000 gift to a major fundraiser for your alma mater. If you write a check for $10,000, the college gets $10,000, and you get to deduct $10,000.

If instead, you give the $10,000 worth of stock,

  • The college still gets $10,000 (it won't owe any tax on the profit when it sells the stock.)
  • You still get to deduct $10,000.
  • You eliminate the tax you'd owe if you sold the stock for $10,000:  Such a sale would trigger a capital gains tax on the $9,000 of profit, and that would cost you $1,350. Making your gift with stock instead of cash saves you that $1,350.

If you don't really want to part with the stock because you think it's still a good investment, give it away anyway. Then use your $10,000 of cash to buy the shares back in the open market. That way you'll only be taxed on future appreciation.

 


 

TurboTax Tip: Donating property that has appreciated in value can help you avoid capital gains tax on the appreciation, provided you have owned the property for more than a year. Deductions for appreciated property are typically limited to 30% of your AGI.

 


 

How a gift is used affects donor value

If you're donating tangible personal property, what the charity does with the item affects how much you can deduct.

  • If you donate land so the local homeless shelter can build a new facility to house more people, you can write off the full market value.
  • If you donate a work of art to the shelter for its fundraising auction, you only get a deduction for the price you paid for the artwork.
  • What if you donated the piece of art to a museum that will display it as part of its collection? In that case, you get to deduct the full market value.

For property worth more than $5,000 ($10,000 for stock in closely-held firms), you'll need to get a formal appraisal.  You'll also have to make sure the appraiser is a member of a recognized professional group or meets minimum education and experience guidelines. If you don't, the IRS can disallow your deduction.

Contributing household items

Donating used goods such as clothing, linens, electronics, appliances and furniture gets you a write-off for the item's fair market value at the time you donated it, which may be considerably less than what you originally paid.

The IRS has a helpful booklet on this subject, Publication 561: Determining the Value of Donated Property.

For items valued at more than $500, you'll need to fill out Form 8283 and attach it to your return. On this form you have to

  • describe each item over $500 that you donated,
  • identify the recipient, and
  • provide information about the value of the item, including your cost or adjusted basis.

Congress has clamped down on donations of household goods to make sure folks aren't inflating the value of their used stuff.

  • No tax deduction is allowed unless an item is in good condition or better.
  • If an item in less-than-good condition is valued at more than $500, you can take a deduction only if you get the item appraised and attach the appraisal to your return.
  • Congress also gave the IRS broad authority to deny deductions for low-value items such as used socks and underwear.

When preparing your taxes with TurboTax, you can use ItsDeductible Online to help you value and track your donations. This free program gives guidance on prices for commonly donated items and is designed to transfer your donation information to your tax return. ItsDeductible is a built-in feature on TurboTax Deluxe and above.

Donating vehicles

If the claimed value of your donated vehicle is more than $500, in most cases your deduction is limited to the amount the car brings when it's sold at auction.

  • The charity has 30 days after it sells your vehicle to issue you a Form 1098-C that shows the sale price.
  • You must attach that form to your tax return or the IRS will disallow the deduction.

There are, however, some situations where you're permitted to claim the car's estimated market value:

  • If the charity significantly improves the vehicle,
  • makes significant use of it, or
  • gives the vehicle (or sells it at a discount) to a poor person who needs transportation.

For more information, check the IRS article: IRS Guidance Explains Rules for Vehicle Donations.

Volunteer services

Don't overlook the volunteer work you perform, which may also generate a deduction. You can write off many out-of-pocket expenses you incur to do good work, such as costs for:

  • materials
  • supplies
  • uniforms
  • stationery
  • stamps
  • parking
  • tolls

You can also deduct the cost of driving to and from your volunteer work, at a rate of 14 cents per mile in 2022. If you take public transportation, that bus or rail fare is deductible, too.

But here's the bad news: The value of services you provide as a volunteer don't merit a write-off. For instance, if you're a carpenter and you help a nonprofit group build a home for the poor, you can deduct travel costs and building supplies you buy, but not the value of the work you do. (That's not as hard-hearted as it may seem. If you were paid to do the work, you'd have to report the pay as income, which would drive up your tax bill.)

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