For taxpayers who itemize, the IRS has a lot of rules about how you must report and document the charitable deductions you claim on your tax return. If you don't follow these rules, your deduction won't be allowed.
Taxpayers who itemize their personal deductions can deduct charitable contributions. Most people no longer itemize because of higher standard deduction amounts established under the Tax Cuts and Jobs Act (TCJA) in 2018. As a result, as many as 95% of all taxpayers are unable to claim any charitable deductions on their tax returns.
If you are able to claim a tax deduction, here are the rules.
Claiming a charitable deduction is simple when you write a check to a charity or make an online donation with your credit card.
For a cash gift of any amount, you need a receipt (showing the date and amount of your donation) or a bank or credit card statement, payroll deduction record, cancelled check, or other bank record showing the transaction. Email communications are generally acceptable. If you donate through a text message, the IRS will accept the phone bill as verification if it shows the recipient organization, the amount, and the date given.
If you want to claim a deduction for a cash gift of $250 or more, you must have a written receipt, describing the gift, from the charity. To determine whether or not this requirement applies to you, you do not have to add up all your donations to a particular charity. For example, if you give the local food bank $50 every month, each contribution is separate, and the receipt rule does not apply.
The receipt should also state whether or not the charity gave you any goods or services in exchange for your gift. If so, the receipt must describe them and give an estimate of their value. The charity doesn’t have to report a low-cost item it gives to you as a token of thanks—for example, a plastic water bottle or coffee mug with the charity’s name on it.
You must get the receipt by the time you file your tax return.
Making “noncash contributions,” in other words, donating clothing, books, cars, or other items, requires more documentation and sometimes a special IRS form. It all depends on the value of your gifts.
To figure out the value of your gifts, add all the value of all similar items. For example, if you give away a hundred valuable old books, add their value together even though you might think you’re really making a lot of small gifts. The rule applies even if you give the items to different charities.
To deduct a noncash donation worth less than $250, you need a receipt with:
If you’re giving securities, you should also document the name of the issues, the type of security, and whether or not it is publicly traded.
Clothing and Household Items. Most of us, from time to time, pass on clothing, furniture, appliances, and similar household items to charities, hoping others can use them. A tax deduction isn’t the main goal, but you can claim a deduction for these items, just like more valuable ones. The items must, however, be in good condition. You don’t get a deduction for giving a charity items that really should be thrown out. You can get values for commonly donated items from various commercial software programs or at the Salvation Army’s Donation Value Guide.
If you want to claim a deduction for a gift worth $250 or more, get a written receipt from the charity that describes the gift. The receipt should state whether or not any goods or services were given to you in exchange for your gift. If they were, the receipt must describe them and give an estimate of their value.
The charity doesn’t have to report a low-cost item it gives to you as a token of thanks—for example, a plastic water bottle or coffee mug with the charity’s name on it.
If you make a total of more than $500 worth of noncash gifts in a calendar year, you must file Form 8283, Noncash Charitable Contributions, with your income tax return.
You have to fill out only Section A of the form if:
If you give away property worth more than $5,000 ($10,000 for stock in a closely held business), you’ll probably need to get an appraisal. (The information goes in Section B of Form 8283, Noncash Charitable Contributions, which must be signed by the person who appraises your gift and the charity as well as by you.)
An appraisal is required whether you donate one big item or several “similar items” that have a total value of more than $5,000. For example, if you give away a hundred valuable old books, and their total value is more than $5,000, you’ll need an appraisal even though you might think you’re really making a lot of small gifts. The rule applies even if you give the items to different charities.
Your appraisal must be from someone the IRS considers a “qualified appraiser.” If you don’t, you won’t be able to claim the deduction. The appraiser must sign Form 8382.
A qualified appraiser is someone who:
The appraiser you hire must be independent and impartial, so don’t hire anyone who is related to you or regularly works for you or the charity. Someone who is a party to the transaction in which you acquired the property being appraised can’t do the appraisal, unless you donate the property within two months of acquiring it, and its appraised value does not exceed the acquisition price.
Generally, the appraisal fee can’t be based on a percentage of the property’s appraised value. And you can’t take the fee you pay the appraiser as a charitable deduction. The fee could count as a “miscellaneous” deduction, but only if the value of all your miscellaneous deductions is greater than two percent of your adjusted gross income.
Special rule for gifts of art. If you donate works of art that have a total value of $20,000 or more, you must include a copy of the signed appraisal when you file your tax return. If any one piece of art is worth $20,000 or more, the IRS may ask you for an 8×10 color photo of it.
Many charities actively solicit the donation of used cars and other vehicles. To claim a deduction of $500 or more for a vehicle you donate, you of course need a written receipt from the charity, issued at the time you make the gift or shortly thereafter.
How large a donation you can claim depends on what the charity does with the vehicle. If it promptly sells the car without using it or substantially fixing it up, you can deduct the amount the charity receives for the car or its fair market value when you donated it, whichever is less. If the charity does use or improve the car (or gives it away as part of its charitable activities), you can deduct the fair market value at the time of the contribution. The charity typically provides this information on IRS Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes.
]]>But what about under state law? Are there any states in which philanthropically minded people of average incomes will continue to have a tax incentive to give?
The charitable deduction is not gone from the federal tax code, but it has been rendered mostly useless for all but the wealthiest or most generous taxpayers. The reason is the doubling of the standard deduction that Congress included in its 2018 overhaul of the U.S. Tax Code (the Tax Cuts and Jobs Act, or TCJA).
The standard deduction for 2023 is $13,850 for people who file an income tax returns as singles and $27,700 for married couples who file jointly. That dollar amount is high enough that the vast majority of U.S. taxpayers have no reason to keep track of and itemize their deductions.
No itemization, no sense tallying up one’s gifts to charity—charitable donations are, after all, on the list of potential itemized deductions.
You might have heard of a temporary exception to the above rules that was included in the Coronavirus Aid Relief and Economic Security Act (CARES Act) of 2020. It allowed taxpayers who do not itemize to deduct up to $300 per year in charitable contributions. This deduction ended in 2021.
This federal tax change shifted incentives, and created a situation where charitable giving by non-wealthy donors decreased measurably. In response, various states have looked into legislation to create a state-tax based incentive for making gifts to charity. It also happens that some states have separate charitable deduction laws on their books, or basically track the federal code and don't have any disincentives to claim the deduction. Let's look, for example, at California, Minnesota, and Colorado.
See a tax professional for more detailed information.
California law basically adopts the federal standards for tax deductions on gifts to charity. (See California Revenue and Tax Code § 17201.) One important difference is that California has a 50% limitation on charitable contributions based on federal AGI, as compared to a 60% limit under federal law.
Because California's standard deduction is much lower than the federal one, however, taxpayers can, and will want to, itemize their charitable contributions on their California tax returns.
Taxpayers in the state of Minnesota who don't itemize deductions on their federal return can, on their state tax return, reduce the amount of their income that's subject to tax by 50% of their total charitable contributions over and above $500. (See § 290.0132 Subd. 7 of the Minnesota Statutes.)
This is often referred to as the "non-itemizer charitable deduction" or the "charitable contributions subtraction."
Minnesota's law was the first of this kind in the U.S., meant to make charitable giving an attractive option to all taxpayers, not just the ones who itemize on their federal return.
The standards for which types of charitable donations "count" toward the subtraction follow the federal guidelines; Minnesota taxpayers are not, for instance, limited to subtracting contributions to Minnesota-based charities.
Similar to the law in Minnesota, Colorado law (§ 39-22-104(4)(m)) says that taxpayers who have claimed the basic standard deduction on their federal return, and who thus can't benefit from a federal itemized deduction for charitable contributions, can take a subtraction on their Colorado return for the full amount of their charitable contributions over and above $500, limited only by a percentage of their adjusted gross income (AGI). The limitation is 50% of AGI in most cases.
The subtraction means that Colorado taxpayers can literally lower their taxable income from the amount shown on their federal return. See this handy writeup from the state of Colorado.
As in Minnesota, the standards for which donations "count" in this situation track the federal ones.
Tax experts also recommend that prospective donors look into the advantages of:
If you have other unusual factors at play in your tax situation, it's possible that you will choose not to rely on the standard deduction for other reasons, and would benefit from making charitable deductions as before. See a tax professional for more detailed advice and strategizing.
]]>Other than cash contributions of up to $300, you can only deduct charitable contributions if you itemize your personal deductions instead of taking the standard deduction. The Tax Cuts and Jobs Act nearly doubled the standard deduction for individual taxpayers. This means there will be far fewer taxpayers who will itemize their deductions—and give to charities.
The basic rule is that you may deduct no more than the property’s “fair market value” at the time of the donation. But fair market value can be a tricky thing. For IRS purposes, it means the amount that a “willing buyer would pay and a willing seller would accept for the property, when neither party is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts.” In other words, it’s a fair price—not too high and not too low.
For property donations of under $5,000, you can determine the fair market value yourself and no appraisal is required. The IRS recommends that you consider all relevant factors, including:
Example: Joe donates a one-year-old Mac portable computer to his church. He paid $1,500 for it new, but he knows it’s worth much less than that because of its age. He looks at sales of comparable computer on eBay and finds that the average price they are going for is $500. He decides this is its fair market value for tax purposes.
IRS Publication 561, Determining the Value of Donated Property, gives a good explanation of how these factors should be used to determine an item’s fair market value. You can refer donors to this publication, which can be downloaded from the IRS website.
For any property donations worth $5,000 or more, you must obtain a formal appraisal from a qualified appraiser. The only exception is for marketable securities because they have a clear market value.
The most commonly donated property items are clothing and household items. Household items include furniture, furnishings, electronics, appliances, linens, and other similar items. Valuation abuses by taxpayers have been widespread for donations of clothing and household items. In many cases, people donated used items that were worthless or nearly worthless and valued them for tax purposes as if they were new. To prevent this, the IRS tightened the rules on valuing household donations in 2005.
Donated clothing or household items must be in “good used condition or better.” If they are not, you can not take a tax deduction for the donation. The IRS provides no guidelines for determining what constitutes “good used condition or better.” However, some nonprofits have guidelines that describe what they will and will not accept and these can be helpful for providing guidance on what the IRS might consider acceptable. For example, the Salvation Army says it does not want torn, dirty, or broken items; Goodwill Industries advises “if you would give it to a relative or friend, then the item is most likely in good condition and is appropriate to donate.”
The tax law contains an exception to the good used condition requirement for any single item of clothing or single household item that is worth $500 or more. If a donor gives such an item, it can be in less than good used condition. However, you must have a qualified appraisal of the item’s value and must file IRS Form 8283, Noncash Charitable Contributions with your tax return.
Example: Caroline donates a vintage French designer ball gown that belonged to her mother to her local symphony orchestra. The gown is over 30 years old and is in poor condition. Caroline hires an appraiser who determines that the rare item is worth $2,000, despite its poor condition. Caroline may deduct this amount, provided that she files Form 8283 with her tax return.
It’s a good idea for you to photograph any items you donate as additional proof of their condition in case any questions come up later with the IRS.
Online valuation guides. Some well-known nonprofits have created value guides for clothing and household goods. It’s hard to imagine that the IRS would complain if a donor used one of these guides. They can be found at the following websites (the Salvation Army guide is the most detailed):
Tax software. Tax-preparation software, including H&R Block’s TaxCut and Intuit's TurboTax, can provide donors with estimated values for clothing and other household goods based on the condition of each item. You describe the item being donated and the program gives an estimate of its value based on surveys of thrift store sales and online auctions. A comparison of the results obtained using these programs and the price guides created by nonprofits found that the software usually gives higher valuations.
Past sales of similar items. Prices obtained in the past for the sale of similar items are always a good indicator of value. Good evidence of value would be the price at which similar items are sold in thrift stores, such as Salvation Army Family Stores and Goodwill Industries. Online auction sites, such as eBay, can also provide guidance on what used items are worth. You may simply check to see what similar items have sold for and could use the average price of a few recent sales.
Special rules apply to donations of automobiles and other vehicles. For details, see the article Tax Deductions for Charitable Contributions.
]]>Example: George Jones spent $500 on car expenses and parking while volunteering for Acme Charities during the year. Acme does not reimburse him for this expense. He may deduct $500 as a charitable contribution.
A volunteer can deduct unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of his or her car in giving services to a charitable organization. However, volunteers cannot deduct general repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance.
There are two ways volunteers can keep track of their car expenses. First, they can keep track and document what they actually spend for gas while volunteering. If they don’t want to bother keeping track of actual expenses, they can use a standard mileage rate for volunteer-related driving which is usually significantly lower than the business rate. See the IRS website for current rates. Given the cost of gasoline today, volunteers are usually better off keeping track of actual driving expenses. Whichever method is used, volunteers can deduct parking fees and tolls.
Travel expenses are one of the most common deductions by volunteers. These include:
If unreimbursed by the charity, such expenses are deductible if they are necessarily incurred while the volunteer was away from home performing services for the organization. A volunteer cannot deduct personal expenses for sightseeing, fishing parties, theater tickets, or nightclubs. Travel, meals and lodging, and other expenses for a volunteer’s spouse or children are likewise not deductible.
Moreover, the trip must have been mostly for business, not pleasure, or it won’t be deductible at all. The IRS says that a volunteer can claim a charitable contribution deduction for travel expenses only if there is “no significant element of personal pleasure, recreation, or vacation in the travel.” This does not mean that the volunteer can’t enjoy the trip, but he or she must have been on duty in “a genuine and substantial sense” throughout the trip. A volunteer gets no deduction at all if he or she had only nominal duties, or had no duties for significant parts of the trip.
Example: Betty is a troop leader for a tax-exempt youth group and helps take the group on a camping trip. Betty is responsible for overseeing the setup of the camp and for providing adult supervision for other activities during the entire trip. Betty participated in the activities of the group and enjoyed her time with them. She oversaw the breaking of camp and helped transport the group home. Betty can deduct her travel expenses.
Example: Ben works for several hours each morning on an archeological dig sponsored by a nonprofit organization. The rest of the day he is free for recreation and sightseeing. He cannot take a charitable contribution deduction for his travel expenses even though he worked very hard during those few hours.
A volunteer can deduct unreimbursed expenses incurred in attended a convention related to charity's work. These include transportation expenses and a reasonable amount for meals and lodging, while away from home overnight.
A volunteer can deduct the cost and upkeep of uniforms that are not suitable for everyday use and that must be worn while volunteering for a charity. For example, a person who volunteers as a Red Cross nurse's aide at a hospital can deduct the cost of uniforms he or she must wear.
A volunteer who works with a charity whose purpose is to reduce juvenile delinquency can deduct amounts he or she pays to allow underprivileged youths to attend athletic events, movies, or dinners. The youths must be selected by the charity, not the volunteer. The volunteer may not deduct his or her own expenses incurred in accompanying the young people.
You may deduct the full cost of long distance telephone calls cellphone charges made on behalf of a charity.
If you host a fundraiser, board meeting, or other event for a charity, you can deduct all catering expenses as a charitable deduction.
The substantiation requirements for deducting unreimbursed volunteer expenses differ according to the amount of the expenses.
If a volunteer claims a deduction of less than $250, he or she need obtain no substantiation from the charity. But the volunteer should keep records of his or her expenses in case they are ever questioned by the IRS.
If the claimed expenses are $250 or more, the volunteer must get an acknowledgment from the charity that contains:
The volunteer must get the acknowledgment by the earlier of:
You can only deduct a donation to a church if you itemize your personal tax deductions on IRS Schedule A. This greatly limits the actual number of people who can take such deductions.
Itemized deductions are deductions taxpayers are allowed to take each year for certain personal expenses, such as mortgage interest, property taxes, state income taxes, certain medical expenses, casualty and theft losses, and charitable contributions. Individual taxpayers have the option to either itemize their deductions or take the standard deduction that is set by the IRS each year. Check the IRS website for current standard deduction amounts.
Only taxpayers whose total itemized deductions are more than the standard deduction should itemize their deductions. Taxpayers who don’t itemize get no deduction for their charitable contributions (or any other itemized deductions). Thus, from a tax standpoint, charitable contributions are useless for people who don’t itemize. Efforts to allow non-itemizers to deduct at least some of their charitable contributions have thus far failed in Congress.
Thus, while in theory all charitable contributions are deductible, as a practical matter, very few taxpayers actually deduct their contributions. This is particularly true after the passage of the Tax Cuts and Jobs Act (“TCJA”) which roughly doubled the standard deduction. Starting in 2018, it’s expected that no more than 5% of all taxpayers will itemize, down from about 30% in prior years.
This is why statements churches and other public charities often make in fundraising solicitations, such as “your contribution is tax deductible," are misleading. It would be far more truthful to say: “Your contribution may be deductible if you itemize your deductions on your tax return."
In addition, you must document your donations. Without written documentation to support a donation, you can’t claim a tax deduction. There are no exceptions, even if you just put a few dollars in a collection plate each week.
What documentation you need depends on the size and nature of the donation. For donations of money under $250, all you need is documentation showing the name of the church, and date and amount of the contribution. You can use a bank statement or some other documentation from your own records that substantiates that the payment was made. If you give cash, you won't have a bank record of the donation. Thus, you'll need to obtain a written record of the donation from the church. It could be a receipt, letter, or any other document or writing as long as it has all the required information.
For all money donations above $250, you must obtain a written acknowledgement or receipt from the church. The written acknowledgement must contain:
You don't need to file this documentation with your tax return. But you must have it available if you're audited by the IRS and your deductions are questioned. Lack of proper documentation is by far the most common reason taxpayers lose valuable deductions.
]]>Gifts of stock and other securities are a popular way to give to charity. Gifts of securities include not only publicly traded stocks like Microsoft or Wal-Mart, but gifts of mutual funds, Treasury bills and notes, corporate and municipal bonds, and stock in non-publicly held companies. It’s extremely easy to give stocks and other securities that are marketable—that is, are sold to the public on stock exchanges or over-the-counter markets. No matter how large the donation, there is no need to obtain an appraisal. The value is simply based on what the stock or other security sold for on the exchange on the day of the donation (the average price between the highest and lowest quoted selling prices on the donation day is used).
There are very favorable tax rules for donors who want to donate long-term stock (stock they have owned for more than one year) that has appreciated in value. Basically, the donor never has to pay capital gains on the appreciated stock. This can be a tremendous tax benefit and great incentive for donors to give stock to nonprofits.
Here’s how it works: If someone owns stock for more than one year that has gone up in value, that person can donate the stock to a nonprofit, get a deduction equal to the fair market value of the stock at the time of the transfer (its increased value), and never pay capital gains tax on the appreciated value of the stock. The nonprofit will never owe that capital gains tax either. It can take the stock and either sell it right away and not pay any tax, or it can hold on to it—but it will never owe capital gains tax on the appreciated value the donor realized.
Example: Ari owns 1,000 shares of Evergreen stock, which is traded on the New York Stock Exchange. He paid $1,000 for the shares back in 2005 and they are worth $10,000 today. He gives the stock to his favorite nonprofit, the Red Cross, and deducts its $10,000 fair market value as a charitable contribution. Ari need not pay the 15% capital gains tax on the $9,000 gain in the value of his stock. The Red Cross sells the stock and pays no taxes on the $10,000 it receives. Had Ari sold the stock he would have had to pay a $1,350 long-term capital gains tax on his $9,000 profit (15% x $9,000 = $1,350). This would have left him only $8,650 from the stock sale to donate to nonprofit.
However, these rules don’t work as well in the case of stock that has gone down in value. The tax benefit of never paying capital gains on the appreciated value of the stock doesn’t apply because there is no capital gain. In this situation, it is better to sell the stock, give the sales proceeds to the nonprofit, and deduct the loss. Donors can use the loss to offset gains they had from the sale of other capital assets during the year. In addition, taxpayers can deduct up to $3,000 in capital losses each year from ordinary income (such as salary income, interest, and dividends). Any remainder can be carried forward and deducted in future years. So donors can potentially benefit by realizing the loss instead of simply giving the stock to a nonprofit where there is no tax benefit.
Example: Assume that Ari’s Evergreen stock is worth only $100. He has lost $900 on his investment. He sells the stock and gives the $100 proceeds to a nonprofit, Building Bridges for Justice. He then deducts his $900 loss as a capital loss for the year (he has no other capital gains or losses for the year). He’s in the 28% tax bracket, so this saves him $252 in income tax. Had Ari given the stock to a nonprofit instead of selling it, he would have had no capital loss deduction. Instead, he would have been able to deduct only the $100 fair market value of the stock.