Tax-Deductible Donations: Rules for Giving to Charity

group of young people contributing to charity

Charity is good for the soul. And along with its many emotional and societal rewards, charitable giving also has tax benefits. Donations to qualifying charity organizations are deductible on your tax return and may reduce your taxable income and overall tax bill, as long as you follow IRS guidelines.

According to the National Philanthropic Trust, Americans gave $471.4 billion to charities in 2020, an increase of 5.1% over 2019 and proof that in good times and bad, the spirit of giving is strong. Here's a quick review of how charity deductions work, including special rules that may apply to your 2021 taxes.

What Charitable Donations Can I Deduct?

Generally speaking, you can deduct qualifying charitable donations totaling up to 20% to 60% of your adjusted gross income (AGI) from your itemized tax return. Limits vary depending on the type of donation and the type of charity, so if you're considering total donations that will exceed 20% of your AGI, read up on the IRS rules. Donations that exceed IRS limits for the year may be carried forward for five years.

Deductible charity donations fall into two main categories:

  • Cash contributions: These include donations you make by check, cash or card. Cash contributions are deductible in the year they are made, so if you mailed a check or charged a donation to your credit card in December, it counts as a donation for that year even if the money doesn't arrive at the charity or hit your credit card statement until January.
  • The fair market value of property: This includes everything from used clothing or household goods to stocks, real estate, art or vehicles. The IRS has detailed guidelines for determining the value of donated property in IRS Publication 561.

Special Charity Deduction Rules for 2021

For the 2021 tax year, the allowable deduction for charity donations has expanded to 100% of AGI for cash contributions to qualifying charity organizations. Taxpayers must itemize their deductions to take advantage of this new rule, and IRS rules regarding the types of contributions and qualifying organizations apply. If you're contemplating making a large donation and hope to take full advantage of the tax benefits, you may want to consult a tax professional for advice.

If you're among the 90% of taxpayers who take the standard deduction instead of itemizing, you still have a special opportunity to save. You can claim up to $300 in charity deductions for the 2021 tax year—$600 for married people filing jointly. This limited deduction applies only to cash donations and non-reimbursable expenses related to volunteering, not to donations of property, and must be made to a qualifying charity. Donations to supporting organizations, donor advised funds, private foundations and charitable remainder trusts do not qualify, nor do charity donations carried forward from prior years. Unless Congress renews it, this deduction goes away for the 2022 tax year.

How to Get a Tax Deduction for Donating to Charity

Outside of the special deduction for 2021 described above, if you want to deduct charity donations on your tax return, you'll need to itemize your deductions. Save a bank record of each payment, such as a canceled check or a bank statement showing your debit, to document your donation. If you contribute $250 or more, be sure to get a statement from the charity acknowledging your gift, the date and amount of your donation, and confirmation that you did not receive any benefit in return.

Not all charitable giving is tax-deductible. You can't deduct the value of volunteer hours and, generally speaking, your donation can't be made in exchange for something of value. For example, you can't deduct the cost of items you've purchased at a charity auction, unless the price you paid exceeds the item's fair market value and you intend the excess amount of your contribution to serve as a charitable donation. If your child attends parochial school, you can't deduct tuition. Political contributions—either to a candidate or a cause—are also not deductible.

Before you claim a charitable donation on your tax return—or, even better, before you make a donation at all—check with the IRS to see whether the organization you're supporting qualifies as tax exempt. The organization itself may be able to provide this information; the IRS also maintains a search tool you can use to verify an organization's tax exempt status.

Helpful Tips for Donating to Charity

A few additional tips to keep in mind as you consider contributing to good causes:

Volunteer hours are not deductible, but related expenses may be. For example, you may be able to deduct gas expenses or mileage for your travel to and from volunteering for a qualified organization.

Charity "purchases" may be partially deductible. This is typically the case if you paid more than the fair market value for a product or service you received and the extra money you paid was intended as a donation. In other words, you can't deduct the $25 you paid to attend a spaghetti dinner fundraiser unless the fair market value of a spaghetti dinner is less than $25. If that's the case—and, say, the dinner is only worth $15—you can deduct the difference, though in this example your tax savings will be small.

Donations to Facebook fundraisers for an organization may be deductible; GoFundMe fundraisers for individuals probably aren't. Facebook fundraisers are tax-deductible when they're raising money for a qualified organization. A GoFundMe that's collecting money for individuals doesn't typically have tax exempt status.

Check out a charity before you contribute. Scams abound, and you should always make sure any charity you donate to is legitimate. This is especially true for any charity that contacts you. Remember: You can always hang up the phone or exit your text messaging or email and go directly to a charity's website to make a donation as an extra safeguard against scams. Charity Navigator and Charity Watch can provide more information about organizations you aren't familiar with.

Charity Deductions Provide an Incentive to Give

Getting a tax deduction may not be the most important reason to contribute to charity, but tax breaks are a great added incentive—and a large donation can make a significant dent in your tax bill. To learn more about tax rules, benefits and deductions, check out the Experian blog.

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