How to Get Tax Deductions for Charitable Donations

Learn 5 steps to maximize tax deductions when you give to charities.

Laura Adams, MBA
5-minute read
Episode #202

Charities have really suffered in recent years due to the lackluster economy. That makes this holiday season a great time to dig deep and give what you can to organizations that mean a lot to you and your family.

How to Get Tax Deductions for Charitable Donations

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Giving always makes you feel good; and if you make a donation before the end of the year, it might also reduce your tax bill. The IRS rewards generosity with money-saving tax perks for certain charitable contributions. In this article I’ll tell you how to maximize your donations and make the most of your charitable giving in 5 simple steps.

Step 1: Give to Qualified Organizations

The first step to maximizing charitable giving is to make donations to qualified organizations. You can give money to any group you like, but you won’t be able to claim a tax deduction unless the charity is eligible to receive tax-deductible contributions. Most public schools, churches, and temples are automatically qualified—but for smaller groups, ask for documentation of their eligibility or look them up online using the IRS charity search tool. If you mail a check or make a credit card donation by December 31st, you’ll make it in time for the current tax year—even if you pay the credit card bill next year. It’s important to note that certain donations are never tax deductible, like those to individuals, political campaigns, business associations, and for-profit organizations.

Step 2: Know How Much Your Gift is Worth

The second step to making the most of your charitable giving is to know the value of your gift. For a cash donation, it’s pretty straight forward because you know exactly how much money you gave. But it gets a little more complicated when you donate property like clothes, household possessions, vehicles, or antiques, because you can only deduct an item’s fair market value at the time of your donation. By the way, clothes and household items are tax deductible if they’re in good used condition only. Another rule is that if you make a donation and get something back for it, like merchandise or tickets to a sporting event, you can only deduct the amount of your contribution that exceeds the value of the benefit you receive.

When your non-cash contributions total more than $500, you have to submit IRS Form 8283 with your tax return. If your non-cash donation is worth over $5,000, then you’re also required to have a professional appraisal, except when you give publicly traded securities. See IRS Publication 561 for more about how to determine the value of donated property.

But what about donating something intangible to a qualified organization, like your time? For instance, let’s say you make 100 cupcakes for a church bake sale that’s 50 miles away. If the church doesn’t reimburse you for the cost of the cupcake ingredients or your cost to deliver them, then those expenses are tax deductible. You can deduct your actual out-of-pocket vehicle expenses, such as gas and oil, or you can use a standard mileage rate of $0.14 per mile to figure your contribution. You can also deduct the cost of tolls and parking fees on top of the $0.14 mileage rate. But you can’t deduct general vehicle maintenance expenses, the cost of auto insurance, or the value of your time to bake the goods and drive them to the church.

Step 3: Itemize Your Deductions

If you don’t itemize your deductions, you can make thousands of dollars of charitable donations, but they won’t be tax deductible.

The third step to maximizing your charitable giving is to do something called “itemizing” on your tax return. If you don’t itemize your deductions, you can make thousands of dollars of charitable donations, but they won’t be tax deductible. Here’s how it works: Every year you have the option to claim a standard tax deduction for your filing status or to list out your deductions individually on Schedule A of IRS Form 1040. When the total of your allowable deductions exceeds the standard deduction, you’ll come out ahead by itemizing (you can refer to Schedule A for a complete list of allowable deductions). However, if your total deductions don’t add up to more than the standard deduction, your charitable donations may bring you lots of good karma, but they won’t bring you any tax benefit. So remember that you have to itemize your deductions on Schedule A to be eligible to deduct charitable contributions.

Step 4: Understand Annual Deduction Limits

The fourth step to maximizing a charitable donation typically comes into play if you make a large gift. That’s because donations can’t exceed annual limits based on your income. For instance, donations of cash are deductible up to 50% of your adjusted gross income only. However, the good news is that if you get an unexpected windfall and make a generous donation, you can carry over excess amounts and claim them in the following five tax years.

Step 5: Keep Good Donation Records

[[AdMiddle]The final step to making the most of your charitable giving is to keep good records. Donations of $250 or more must have supporting documentation that includes the charity’s name and the description, date, and amount of the gift. It’s a good idea to always get receipts for your smaller donations too, so no deduction falls through the cracks. If you have questions about making charitable donations, it’s smart to get advice from a qualified tax professional so you always make the most of your giving. 

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More Resources:
Publication 526, Charitable Contributions
Instructions for Form 8283, Noncash Charitable Contributions
Form 8283, Noncash Charitable Contributions
Instructions for Schedule A
Schedule A
Form 1040
Publication 561, Determining the Value of Donated Property

Image: Cheshire cupcakes, Katjaskupcakes at Wikimedia. CC BY 3.0

About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.