Everything You Should Know About The Charitable Contribution Deduction

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  • Contributors:
  • Claude Titche III
Image of older woman in home workshop reviewing her charitable contribution deductions

Your donations to certain organizations may give you a feeling of goodwill, but they may also bring you some tax savings and benefits. This can be especially helpful during the COVID-19 pandemic, to both you and nonprofit organizations.  Here’s what you should know about making a charitable contribution so you can maximize the deduction.

 

What’s a charitable contribution?

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 an organization such as the Salvation Army, Red Cross, or United Way.

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.

 

What’s NOT a qualified organization?

Social and sports clubs, political candidates or groups, homeowners’ associations, lobby groups and many foreign organizations are not qualified organizations.

Raffle, bingo, or lottery ticket costs, tuition, and value of your time and services given to an organization are also not charitable contributions.

 

How can I find a qualified organization?

You can search for qualified organizations on the IRS’ site by using their Exempt Organizations Select Check Tool. Not all organizations are listed here, so it’s a good practice to ask the organization as well.

 

How do I claim the deduction?

You must file Form 1040 and itemize your deductions on Schedule A. If you make noncash charitable contributions of more than $500, you must complete Form 8283.

 

When do I have to make the contribution?

In order to deduct the contribution on your tax return, you must make the contribution by the end of your tax year. Below is a list of various payment methods and the corresponding contribution date.

Payment MethodContribution Date
MailPostmark date
DeliveryDate of delivery
Credit cardDate payment is authorized by donor
Electronic transferDate transfer is completed by bank
Stock from brokerage accountDate funds are transferred to organization’s account

What records do I need to keep?

A written statement from the organization or a bank record for any gift of money.

All 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.

 

What if I receive a benefit from the organization?

If you make a contribution and you 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. You can deduct $80 as a 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 are required to 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, the statement must say you can only deduct the amount that is more than the value of the goods or services you received.

 

What are the 2020 deduction limits?

The CARES Act, which was passed in March 2020, temporarily suspends the limits on charitable contributions. Under these new rules, you can deduct any cash contribution made to a qualified organization in 2020 – up to 100% of your adjusted gross income (AGI). This means you could donate your entire salary in 2020 and owe no taxes on that income. And, charitable organizations can benefit from larger donations in a time when they need them more than usual. You could only claim a deduction of up to 50% of your AGI before the CARES Act.

The CARES Act made several additional changes regarding charitable contributions:

  • 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.
  • Beginning in 2020, C corporations can give up to 25% of their taxable income for a deduction. This was previously limited to 10%.
  • The limitation on food inventory contributions has increased to 25% of taxable income.

 

Limitations can vary based on the type of organization. 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 10/8/2020.

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