Understanding Charity Tax Deductions: What You Need to Know
The old saying goes that it’s better to give than to receive. If you aren’t convinced, studies have shown that helping others can make you happier and may help improve your health.
Another bonus? Taxpayers can reduce their annual tax bill with charity tax deductions.
If you’re interested in donating to a good cause while also reaping the financial benefits of giving, you’ll need to do some tax planning. This article explains the most important aspects of charitable contribution deduction to help you understand how charitable tax savings work.
What are the tax benefits of giving to charity?
The tax benefits of donating to charity are simple: Deducting charitable donations from your taxes may reduce the amount of money you’ll owe to the federal government at the end of the tax year, depending on your financial situation and taxable income.
The IRS allows taxpayers to deduct charitable contributions on their federal tax returns of up to 50% of their adjusted gross income (AGI). Contributions to certain types of organizations, including private foundations, veterans groups, fraternal societies, and cemetery organizations, are subject to a limit of 30% of adjusted gross income.
Celebrities and the super-wealthy often take advantage of these high limits and donate vast chunks of money to nonprofits. But even if you’re not donating billions of dollars like Bill Gates, a specific charity tax deduction might still help reduce your income tax.
You can also donate long-term appreciated assets, such as real estate, stocks, bonds, and artwork, that you’ve held for more than one year and reduce your capital gains tax liability by up to 20%. You can also deduct the fair market value of the asset from your income taxes.
How do charity tax deductions work?
If you’ve ever heard someone say “you can write that off,” they were likely referring to tax deductions. A few of the most common deductions are student loan interest, business expenses, home mortgage interest, and donations to qualified charities.
How do I claim a deduction for charitable donations?
Here are the main steps to claim a deduction for charitable donations:
- If donating directly to a charity, make sure it is a legally registered 501(c)(3) Certified Charity. To be certain, you can always check an organization’s status on the IRS website.
- Itemize deductions when filing your taxes. You can only claim charitable deductions on your tax return if you itemize deductions. Note: taxpayers can’t claim the standard deduction for their filing status when they itemize deductions.
- On your tax return, you can claim a tax deduction for charitable giving on Schedule A (Form 1040).
How do you know if contributions are tax-deductible or not?
Before donating to a charity, ensure it is a qualified charitable organization if you intend to claim a tax-deductible donation.
Use the IRS Tax Exempt Organization Search tool to verify the charity’s eligibility. Contributing to charitable causes that matter to you while taking advantage of the tax benefits of donating to charity is a win-win for everyone.
What type of donations are tax-deductible?
You might be surprised by some of the ways you can claim charitable donations on your taxes. Below are some general rules about which donations are considered deductible and which aren’t, according to the IRS.
Types of charitable contributions that are deductible
- Donations to religious organizations and houses of worship, including synagogues and churches
- Donations to federal, state, and local governments
- Donations to war veterans’ groups
- Donations to nonprofit schools and hospitals
- Expenses incurred from a student living with you
- Volunteer expenses
- Payroll deductions to charities through your employer
Types of charitable contributions that are not deductible
- Donations to foreign organizations
- Donations to political parties, action committees, or fundraisers
- Gifts donated to individuals
- Donations to foreign governments
- Donations to for-profit schools or hospitals
- Donations to social and sports clubs
- Donations to labor unions
- Donations to homeowners’ associations
Different types of charitable donations have their own set of tax rules. Luckily, the IRS provides a comprehensive guide on charitable contributions to help you navigate any uncharted tax territory and still take advantage of the tax benefits of giving.
What about online fundraising and charitable tax deductions?
In the age of crowdfunding, it has never been easier to support your favorite charity. Technology has changed the way people all over the world help others. Lending a digital hand to those in need is now effortless, and finding the best public charities to donate to takes no time.
The top charity fundraising sites have done an incredible job of simplifying the giving process for donors and organizers alike. Fundraising platforms now issue tax-deductible written acknowledgement for donations to qualified organizations. They also allow donors to track their donations in one place easily, whether on a donor dashboard or through Instagram and TikTok with real-time updates.
Keep in mind that if you are donating to a personal GoFundMe fundraiser, versus one hosted by a 501(c)(3) non-profit organization, your donation may not be tax-deductible. Generally, donations made to a personal GoFundMe fundraiser are considered personal gifts and may not be tax-deductible.
Only donations made to GoFundMe charity fundraisers are guaranteed to be eligible for tax deduction in the US, UK, Canada, Ireland, and Australia. Our charity partner, PayPal Giving Fund, will automatically issue tax receipts for such donations, not GoFundMe.
5 charitable donations tax deduction tips you should know
Now, if you want to make the most of your charitable contributions, you’ll want to keep these charity tax deduction rules in mind. A little tax preparation can go a long way when it comes to reducing income tax deductions.
1. Time your donation correctly
Donations are only deductible in the year that they’re made. This means that you must make donations by December 31st to count, and you cannot carry over donations. Checks can’t be dated for the following year. Here’s how to find charities near you.
2. Note any personal benefits and incentives
Typically, an eligible donation is 100% tax-deductible with a few exceptions. If you receive any incentives or personal benefits in exchange for your donation, such as a ticket to a charity ball or sporting event, the IRS requires you to subtract the fair market value of the benefit before claiming. For example, if you receive tickets to an event valued at $25 for your donation of $200 to an organization, you could only claim $175 as a charitable donation on your taxes.
3. Always ask for receipts
It’s important to get a receipt as proof of your contribution when making cash contributions and online donations. The receipt should state the amount of the donation, the date, and the name of the organization you donated to.
For cash donations of $250 or more, you will need a receipt to support your contributions. For donations made to tax-deductible charities on GoFundMe, you will automatically receive a receipt.
For non-cash charitable contributions exceeding the value of $500, you will need to fill out Form 8283. Non-cash donations can include donated items such as a car or boat. It would be worth making note of the value of any noncash donations before donating.
4. Consider working with a tax professional
Tax laws can change yearly, and everyone’s situation is different, so we recommend working with a tax professional before following any of the advice outlined in this guide. They will help you itemize your charity tax deductions on your return. A tax professional will ensure you’re adhering to tax laws, and they’ll be able to help you maximize the tax benefits of donating to charity.
5. Find the right charity to support your cause
Need help finding a charity to donate to? Start your search using these blog posts:
- Best humanitarian charities
- Best children’s charities
- Best environmental charities
- Best animal charities
- Best veteran-focused charities
- Best LGBTQ+ charities
Give back to an online charity fundraiser right now
Thousands of people have used GoFundMe to give back to causes they care about. Through our platform, individuals can quickly donate to certified charities and become part of an online community of people who share similar passions.
Discover charity fundraisers on GoFundMe, then make a tax-deductible contribution to your favorite 501(c)(3). If you’d like to make an even bigger impact, give back with charity fundraising by starting your very own crowdfunding fundraiser. Sign up now and start making a difference for those in need.