Charitable Giving and Your Taxes: Making the Most of Your Contributions

Charitable giving is not only personally gratifying, but can also provide valuable tax benefits when done thoughtfully. Understanding how different types of charitable contributions work under IRS rules can help you plan your giving more effectively and make the most of your deductions.

Cash Contributions

Most people give to charity through cash, check, or credit card payments. These are considered cash contributions, and they’re deductible if you itemize your deductions on your tax return. To qualify, the organization must be a qualified charity, which you can verify on the IRS website.

To claim your deduction, keep a record of your donation – a bank or credit card statement, or a receipt from the charity. For gifts of $250 or more, you’ll need a written acknowledgment stating the amount donated and confirming that you didn’t receive goods or services in return.

Generally, you can deduct up to 60% of your adjusted gross income (AGI) for cash donations, though lower limits may apply in some cases. If you exceed those limits, you can usually carry the remainder forward for up to five years.

Quid Pro Quo Contributions

Sometimes donations come with a benefit – like a gala ticket or charity auction purchase. In these quid pro quo situations, you can only deduct the portion of your payment that exceeds the fair market value of what you received.

For example, if you paid $200 for a charity dinner worth $80, your deductible amount is $120. Charities are required to tell you the deductible portion of these contributions if the payment exceeds $75, so keep that documentation with your records.

Payroll Deductions

Giving through a payroll deduction is an easy way to donate throughout the year. The IRS treats these contributions just like other cash donations. To document them, keep your W-2 or pay stub showing the withheld amount and a pledge card or statement from the charity. Because these donations are spread across multiple pay periods, they can be easy to overlook, but they can add up to a significant deduction by year’s end.

Out-of-Pocket Volunteer Expenses

If you volunteer for a qualified charitable organization, you can’t deduct the value of your time, but you can deduct out-of-pocket expenses directly related to your service. This might include parking, supplies, or mileage when using your car for charitable purposes. Be sure to keep receipts and a record of your miles or other expenses. The amounts are usually small, but consistent tracking can make a difference over time.

Donating Property

Gifts of property – from clothing and furniture to stocks and real estate – can also be deductible. In most cases, you can deduct the item’s fair market value at the time of the donation. For higher-value property, you may need an appraisal and must complete IRS Form 8283.

Donating appreciated assets can be particularly tax-efficient, since you may be able to avoid capital gains tax while claiming a deduction for the full fair market value. For larger gifts, it’s wise to coordinate with a tax advisor to ensure everything is properly valued and documented.

Putting It All Together

The key to maximizing your charitable deductions is planning and documentation. Make sure you’re giving to qualified organizations (qualified charitable organizations are entities given tax-exempt status by the IRS – this does not include individuals seeking help on crowdfunding platforms such as GoFundMe), keep clear records for every contribution, and consider the timing of your gifts – especially if you alternate between taking the standard deduction and itemizing. With a little forethought, charitable giving can serve both your philanthropic goals and your overall tax strategy, allowing you to give generously while keeping your finances in good order.