Donating to your favorite charity or foundation not only helps a great cause but could also mean a smaller tax bill. Here’s what you should know about making a charitable contribution so you can maximize the deduction.
What’s a charitable contribution?
Most people refer to it as donating to charity. Technically, a charitable contribution is a donation or gift made to, or for the use of, a qualified organization.
What’s a qualified organization?
A qualified organization can be a religious organization, nonprofit school or hospital, war veterans’ group, or another organization. Are you giving to a nonprofit organization that’s a 501(c)(3) public charity or private foundation? Great! These are qualifying organizations.
Charitable contributions can also include donations to governments for public purposes and out-of-pocket expenses incurred if you serve as a volunteer for a qualified organization.
Search for a qualified organization on irs.gov. Not all organizations are listed with the IRS, so make sure to check with the organization you’re supporting.
What’s NOT a qualified organization?
Social and sports clubs, political candidates or groups, homeowners’ associations, lobby groups, and many foreign organizations aren’t qualified organizations.
Did you donate raffle, bingo, or lottery ticket costs? Tuition? Your time and services? These are great ways to give back, but they aren’t considered charitable contributions.
How do I claim the charitable contribution deduction?
File Form 1040 and itemize your deductions on Schedule A. If you make noncash donations and you donate more than $500, complete Form 8283.
What’s the last day to make a charitable contribution in 2021?
In order to deduct this contribution on your 2021 tax return, you must make the contributions by the end of the calendar year – Dec. 31, 2021. Below is a list of various payment methods and when the contribution is considered made.
|Payment Method||Contribution Date|
|Delivery||Date of delivery|
|Credit card||Date payment is authorized by donor|
|Electronic transfer||Date transfer is completed by bank|
|Stock from brokerage account||Date funds are transferred to the organization’s account|
What records do I need to keep?
You should receive a written statement from the organization that accepts your donation. Or, you can pull a bank record – from your bank account – for any gift of money.
Acceptable documentation should include the name of the charity, the date, and the donation amount. For gifts of money or property more than $250, the organization must give you written acknowledgment of your donation.
Learn more about IRS substantiation requirements here.
What if I receive a benefit from the organization?
If you make a contribution and receive a benefit in return (a quid pro quo contribution), you must deduct the fair value of goods and services received from your total contribution.
For example: You donate $100 to an organization. The organization gives you a ticket to an upcoming event that has a fair market value of $20. On your tax return, you can deduct $80 as your charitable contribution to the organization.
If the benefit you receive from the organization is considered a token item, you don’t have to reduce your contribution.
What’s a written statement for a quid pro quo contribution?
Organizations must provide a written statement if your payment is more than $75. The statement must include a good-faith estimate of the fair value of the goods or services you receive and how much of your contribution is tax-deductible.
What are the 2021 deduction limits?
The CARES Act, which was passed in March 2020, temporarily suspended the limits on charitable contributions. In March 2021, the Consolidated Appropriations Act, 2021 extended these CARES Act provisions into 2021. Under these rules, you can deduct any cash contribution made to a qualified organization in 2021 – up to 100% of your adjusted gross income (AGI).
This means you could donate your entire salary in 2021 and owe no taxes on that income. And, charitable organizations can benefit from larger donations in a time when they need them.
The following provisions may impact your 2021 charitable contribution deduction:
- Taxpayers filing single/separately: If you opt for the standard deduction and choose not to itemize your deductions, you can still claim a deduction of up to $300 for qualified contributions.
- Taxpayers married filing jointly: If you opt for the standard deduction and choose not to itemize your deductions, you can still claim a deduction of up to $600 for qualified contributions.
- C corporations can give up to 25% of their taxable income for a deduction.
- The limitation on food inventory contributions is 25% of taxable income.
You may experience deduction limitations based on the type of organization you support. For example, contributions are limited to 30% of your AGI when made to certain private foundations, fraternal societies, veterans’ organizations, or cemetery organizations. You can check the deductibility status of various organizations here.
Originally published 11/22/2019. Updated 5/20/2021.
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