The Internal Revenue Service recognizes the importance of philanthropic activities and grants you a tax deduction for contributions made to charities and other nonprofit organizations. The general rule of thumb is that you can deduct up to 50 percent of your adjusted gross income. Exceptions limit this figure to as low as 20 percent in some cases. To claim the deduction, you must meet eligibility criteria, keep records and file the appropriate tax forms.
You can't donate to just anyone if you want to get a tax deduction. The IRS gives examples of eight different qualified entities, including churches, synagogues, nonprofit volunteer fire companies, civil defense organizations and foundations created in the U.S. organized exclusively for charitable, educational, scientific or literary purposes. Because the IRS differentiates qualified organizations as "50 percent limit" or "30 percent limit" organizations, ask your organization what its status is. Giving money to individuals, political organizations and candidates for elective office are not considered deductible charitable contributions.
Itemizing and Receipts
To claim the charitable deduction, you must file form 1040 and itemize the deductions on Schedule A rather than claiming the standard deduction. Regardless of the donation amount, the IRS says you must retain a written receipt by the organization of your monetary gift if you want to deduct it. As of 2014, for a donation of cash or property of $250 or more, you must have a written acknowledgment from the qualified organization as to the nature and amount of the gift. Additionally, if your deduction for all non-cash contributions is over $500, you must fill out IRS Form 8283, Non-cash Charitable Contributions.
Timing and Limits
As long as your total contributions for the year are 20 percent or less of your adjusted gross income, you don't have to observe deduction limits. Once you pass that threshold, the type of organization will dictate how much you can deduct. For all public charities and all private operating foundations, you may deduct up to 50 percent of your adjusted gross income. Deductions are limited to 30 percent for other types of private foundations. Your limit may be further reduced to 20 percent for contributions of capital gain property.
When claiming charitable donations, refer to IRS Publication 526, Charitable Contributions, and Publication 561, Determining the Value of Donated Property. The latter provides guidance on valuation of different types of property, such as jewelry, paintings, patents and real estate. Donations of non-cash property such as stock are usually valued at fair market value, which is the amount that a willing buyer would pay a willing seller given that both parties have reasonable knowledge of the facts.
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