The Amount of Charitable Contributions for Federal Income Tax
The amount of charitable contributions you can deduct for federal income tax purposes is equal the value of all property and cash you donate to IRS qualified charities during the year. However, the amount you can deduct in a single tax year is subject to limitations that relate to your level of income. If your deduction is limited, you can carry the excess forward to one of the next five tax years.
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Qualified Charities
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If you choose a charity to receive your donation without verifying that the IRS has granted it tax-exempt status, then you run the risk of your contributions being non-deductible. To ensure you are able to claim a deduction, you should access Publication 78 (see Resources). This publication lists all organizations the IRS treats as tax-exempt, and therefore eligible to accept tax-deductible donations. Keep in mind that most religious organizations are not listed in this publication, though most donations you make to them are deductible.
Calculating the Deduction
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Once you determine that all organizations you make donations to are approved by the IRS, then it's time to start doing some math. For you cash donations, just add them up to determine the deduction. However, if you make property donations during the year, you must determine their fair market value before you can even begin to calculate your deduction. The fair market value of each piece of property is essentially the price you could obtain for it if you sell it rather than donate it. For example, if you donate a used couch to your local church, a good way to estimate its value is to see what local used furniture and thrift stores sell similar items for. One thing you can never do is base the deductible value of the couch on the price you paid for it brand new. The IRS states that this is never an accurate way to estimate value.
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Annual Limits
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The IRS imposes annual limitations on the amount of donations you can deduct on your tax return in a single year. Generally, the total value of your annual contributions is fully deductible if it does not exceed 50 percent of your Adjusted Gross Income (AGI). To illustrate, suppose your AGI is $50,000 and you made $30,000 worth of charitable contributions. The IRS allows you to deduct half, which is $25,000. You can then deduct the remaining $5,000 on any of your next five returns.
Document Requirements
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In most cases you don't need to attach documentation to your tax return. However, the IRS does require you to retain at least one piece of documentary proof for your donation. When you make cash donations, you must keep a canceled check, a receipt from the charity, proof of a payroll deduction or a credit card statement. For each single property donation you make that exceeds $250 in value, the charity must provide you with a written acknowledgment of the donation. The IRS has three years from your tax return's deadline to conduct an audit. If it does, and you don't have the required documentation, you risk losing those deductions and paying additional tax.
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