Donating money to causes that are important to you is a virtuous endeavor that feels great! It can also pay. If your gift is large enough — and assuming you itemize your deductions — charitable donations can reduce your taxable income.
“Large,” of course, is the key word here. With a relatively high standard deduction in place, many taxpayers now opt out of itemizing deductions. If, however, you do plan to itemize, make sure you know the rules for taking charitable deductions and understand how charitable giving impacts your taxes.
The Tax Benefits of Charitable Gifts
When you donate money or property to a qualified nonprofit organization, you can also generally deduct the cash value of your charitable gift from your taxable income.
If you volunteer for a nonprofit, you can also take advantage of a less well-known tax benefit: You can deduct any out-of-pocket expenses that you incur as a volunteer, including any supplies or uniforms you purchase, and the mileage or public transportation costs required to get to and from the nonprofit’s events or office.
How To Make Sure Your Charitable Donation Is Tax-Deductible
While most donations to nonprofit organizations are eligible for a tax deduction, there are still a few things you should check to ensure it is.
- The organization you’re making a donation to must be recognized by the IRS as a tax-exempt group. Nonprofit schools and hospitals, social service and religious organizations, qualified medical research organizations, and other nonprofits generally qualify. Still, check the IRS website to make sure the organizations you support do qualify as tax-exempt groups.
- In most cases, to qualify for a deduction, your financial contributions to charities can’t exceed 60 percent of your adjusted gross income (AGI).
- When donating household items such as clothing, furniture, or appliances, the property you’re donating must be in good condition to deduct its fair market value. If you’re donating noncash gifts that are worth more than $500 in total, you must also fill out Form 8283.
- Your gift must have been given in the tax year in which you’re filing.
Document Your Charitable Giving
Consider using a charitable giving worksheet to track your donations throughout the year. The documentation you’ll need varies depending on if you’re giving cash or property, as well as the value of the gift. Be aware of these guidelines:
- When giving cash, you’ll need either a receipt from the charity, a canceled check, or a bank or credit card statement showing the charge. If you give through a payroll deduction, you’ll need to keep a pay stub, your W-2 or documentation from the organization showing your donation and the name of the nonprofit.
- If you make a charitable gift of property that is worth less than $250 in total, you will need to get a receipt from the organization that includes the name of the nonprofit, its location, the date you made your gift, and a description of the items you donated. You’ll also need to document the fair market value of each item, and how you determined that value. The IRS website has a number of guidelines to help you with this.
- For cash gifts valued at $250 and up, you’ll need additional written documentation that states the amount donated, and whether you received any tangible benefits in exchange for your gift.
- For noncash gifts worth more than $250, the IRS requires additional written documentation. For instance, to deduct a gift of property valued at more than $5,000, the IRS requires an independent appraisal of the item.
For more information, check out IRS Publication 526, Charitable Contributions.
A version of this article appeared in our partner magazine, The Essential Tax Guide: 2023 Edition.