Charity Tax Deductions (What Counts as a Contribution?)

Taxes 101 box of donations

Today is a very special day – Giving Tuesday: a day when individuals and businesses help those in need by making charitable contributions with the possibility of also trimming their tax bills before the end of the year. This year’s Giving Tuesday is expected to be a big day of giving with so many people in need. If you are planning to give this Giving Tuesday or at any time, it is important to know what qualifies as a charitable organization and donation when considering taking a charitable deduction.

Most of us are familiar with the idea of donating something to a charity and “writing it off.” But there is often some confusion about exactly what this means. Some believe that you can deduct contributions to any organization you want. Others insist that you can deduct the value of time spent volunteering. In fact, both of these ideas are false.

Below, we’ll explain what charitable contributions really are and how they work:

The Technical IRS Definition

A charitable contribution is when you donate money (including securities or business ownership interests), goods or services to an organization and deduct the market value of the contribution on your income tax return. The IRS elaborates:

“Contributions must be made to qualified organizations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.”

Here, “qualified organizations” is the phrase to pay attention to. The IRS does not allow you to “donate” money to your Uncle Bob up the road or the pizza shop downtown and deduct it from your income taxes. Generally, the only charitable donation deductions you can take are donations made to not for profit 501(c)(3) charitable organizations, but not all nonprofits qualify. More specifically, an organization must have a religious, educational, literary, charitable, or scientific purpose and 501(c)(3) status from the IRS. If you are unsure whether an organization qualifies, use this IRS search tool to figure it out.

Different Forms of Contributions

As noted, you are permitted to donate and deduct the value of things other than money. In addition to cash, you can also donate

  • Cars
  • Clothing
  • Collections of valuable items
  • Artwork
  • Jewelry
  • Securities
  • Real estate

All of these may make you eligible for a tax deduction. There are limits, though. If the value of what you donate is $250 or more, you need to obtain and file a written acknowledgement from the qualified organization you donated to. If the value of your non-cash charitable contributions exceed $500, you’ll need to include specific information about the charitable organization and what was donated when you file your tax return. TurboTax ItsDeductible will help you track and value your donations year round, and then your information transfers directly to your TurboTax return at tax time.  

Volunteering

People often ask whether volunteer work entitles them to a tax deduction. They say, “ten hours of my time has a market value. If that’s what I gave to Habitat For Humanity, can’t I deduct it?” Logical and justified as this may seem, it’s actually not legal, according to the IRS. The value of your time is different from the value of someone else’s time, and the IRS can’t verify what you say your time is worth. Or how many hours you really volunteered. Nor can you deduct any personal expenses connected with volunteering (like the cost of putting your children in daycare). What you can deduct are costs that relate directly to your volunteer work, including:

  • Gas
  • Oil
  • Uniforms or supplies
  • Air or bus transportation

Required Forms & Paperwork

When it comes to making charitable contributions – and getting the deductions you are entitled to – documentation is everything. Any contribution (cash or noncash) of $250 or more requires that you get a “contemporaneous written acknowledgement” – in other words, a receipt – from the charity you donated to. Then there’s IRS Form 8283, which must be included with your tax return for non-cash donations exceeding $500 in value as well as noncash property worth more than $5,000. In the latter case, you’ll also need to get  a “qualified appraisal” of the property.

Qualified appraisals are required or suggested for other non-cash contributions as well. Donated artwork valued at $20,000 or more, for instance, requires that a signed appraisal be attached to your tax return.

“Quid Pro Quo” Contributions

Some charities try to “sweeten the deal” by offering incentives for people to donate more. At first, this might seem too good to be true. A tax deduction, and free stuff? Unfortunately, it is too good to be true. As the IRS makes crystal clear:

“If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.”

In other words: if the dinner or event ticket you receive is worth as much as whatever you donated, you won’t be able to take a deduction since you have to deduct the value of what you received from your donation. This does not necessarily mean you shouldn’t donate something – it means that if you made a donation and you received something in return, you need to be aware that you can’t deduct the full amount of the donation.

Requirements for Deducting Charitable Donations

Typically, if you make a charitable donation to a qualified charity, you can deduct the contribution if you are able to itemize your deductions and not claim the standard deduction. However, under the CARES Act, there is the addition of a new charitable deduction up to $300 on your 2020 taxes for your cash donations made to a 501(c)(3) organization even if you don’t itemize your deductions. This will be something for taxpayers to keep in mind since close to 90% of taxpayers now claim the standard deduction instead of itemizing and are no longer able to deduct charitable contributions under tax reform.

You’re able to itemize your deductions if your itemized deductions, such as deductions for home mortgage interest and property taxes, are more than the standard deduction. For tax year 2020, the standard deduction increased to $12,400 for single filers and $24,800 for married filing jointly. If you file as head of household, your standard deduction is increased to $18,650. If your itemized deductions are more than the standard deduction, you will benefit from claiming itemized deductions and will be able to deduct cash and non-cash contributions.

Usually, cash donations that you can deduct as an itemized deduction are limited to 60% of your adjusted gross income, but the CARES Act eliminates the limit for tax year 2020 returns (the ones you file in 2021).

Don’t worry about knowing these tax rules. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your entries. If you have questions, you can connect live via a one-way video to a TurboTax Live tax expert with an average 12 years experience to get your tax questions answered. TurboTax Live tax experts are available in Spanish and English, year round and can even review, sign, and file your tax return.

Comments (12) Leave your comment

  1. If a 501(c)(6) non-profit organization organizes a fun run event at it’s annual meeting for it’s 501(c)(3) foundation and they advertise that the registrations fee are tax deductible but, the participants make their registration fees for the event payable to the 501(c)(6) organization. It is the intent of the 501(c)(6) to write one check to the foundation for registration fees collected at the end of the event. Can the individual registrants claim a tax deduction?

  2. We are a non profit summer camp. A parent signed up their child for camp with a $100 non refundable deposit. They later canceled their registration but now want their $100 to be applied as a tax deductible gift. Is this possible since we never actually provided the service? It seems to me that they did not intend for it to be a gift and did receive something in return (a spot held). Which side is correct?

  3. Turbo Tax isn’t allowing me to e-file as I have more than 4 form 8283’s for charitble contributions. I can’t find anything on the IRS website that restricts this. Is this a Turbo Tax issue?

  4. I have been browsing oinlne greater than 3 hours as of late, yet I never found any attention-grabbing article like yours. It is pretty price enough for me. In my opinion, if all website owners and bloggers made good content as you probably did, the web shall be a lot more useful than ever before. It’s all right to have butterflies in your stomach. Just get them to fly in formation. by Dr. Rob Gilbert.

      1. I have a question on Turbo Tax treatment of charitable contributions on the Hawaii state return. Last year 2011 turbo tax input the charitable contributions for Hawaii as the same amount as the federal charitable contributions shown on Schedule A. This year (2012) it limited the HI Chartitable deduction by the amount of the HI AGI. It did not do a similar limitation in 2011. How do I find out if there is an error in Turbo Tax processing for either 2011 or 2012 Hawaii. One of the years must have an error.

  5. There always been a economic dissection in every society to bridge the gap between the living standard of any two classes of society, well administered charity work play its role and today world of technology mobile phones donation can play their role impressively!

  6. Sir

    I donated a boat to the Veterans Services Fund.

    I received a letter for a $500 donation.

    The boat and extras were worth a lot more.

    Where can I go to find out the worth of the boat.

    Thanks

    Robert Taylor

    1. I am handicap due to muscular dystrophy. Because of that I do not work and receive ssi. A friend of mine purchased a servce dog for 1,500.00 plus many other items for me out of thier own pocket. Is their any way they can claim even a portion of this as a tax deduction? I would like to held them out and return some of thier kindness in some way. thank you.
      Janeen

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