Charitable Donation Deductions

IRS Tax Deductions for Charitable Contributions

© Estela Kennen

Mar 23, 2007

The joy of giving should be a gift in and of itself, but it doesn’t hurt that the IRS can give you a tax break for your donations to charity. If you itemize your deduction, you can deduct certain charitable contributions from your income taxes. The higher your income tax bracket, the more your charity tax deduction is worth to you. To stay on the IRS’s good side, keep these things in mind before deducting any charitable contributions:

• Not all donations to all tax-exempt organizations are eligible for tax deductions. For example, contributions to organizations that lobby heavily cannot be deducted. Donations to foreign charities or foreign governments are also not deductible. Contribution forms usually state if a donation is deductible or not. When in doubt, ask. Generally speaking donations to the following types of charities are deductible:

1. Churches and other religious organizations;
2. Educational organizations; hospitals and medical research organizations;
3. Community chests and other publicly supported organizations
4. Membership organizations that are at least 1/3 publicly funded
5. Certain private foundations
6. Units of government, such as state departments or local government

• Not every dollar you give to a charity is automatically tax-deductible – only contributions that don’t get you a good or service in return. For instance, if the membership cost to a charity includes a magazine subscription, the cost of the subscription is not deductible, though the rest of the membership fee may be. If you go to a charity dinner, only the cost above the fair market price for the dinner is considered a deductible donation.

• Your time and expertise are not deductible. While volunteering can be a wonderful gift, it is not one that comes with any tax breaks. You may however be able to deduct mileage ($.14/mile in 2007), dry cleaning expenses for laundry, lodging, and other costs associated with volunteering.

• When it comes to cash, you can only deduct what you can prove you donated. In other words, get and keep a receipt form the charity (showing the organization’s name, contribution date, and amount donated), keep canceled checks and credit card statements, etc. If your donation is worth more than $250, you must have documentation from the charity; a canceled check is not enough for the IRS.

• Keep an itemized list of any donated items and get a receipt from the charity. You must figure out the fair market value for each item. Don’t be overly generous. If the item was not in the pristine condition required by the upscale consignment store, but was good enough for the thrift store, then the value is what it would sell for at the thrift store. (By the way, charitable donations do not have to be in perfect condition, but they should be in really good condition – charities are not around to get rid of your junk so you can get a tax break).

• If you make a donation of an item believed to be valued at more than $500, it will have to be appraised by an independent party. Submit the results of the appraisal with your income tax return to the IRS.

• A charitable contribution is deductible for the year in which it was paid (for instance, when a check was cashed, or a credit card was charged, regardless of when the credit card payment was made).

• In most cases you can get a tax deduction worth up to 50% of your income (provided you actually made that big a charitable contribution). However, deductions for certain charitable deductions are capped at 20% or 30%. If you are planning on deducting 20% or more from your income tax, check with a tax professional before submitting anything to the IRS.

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