NTA Blog: Giving Thanks, Giving Tuesday (November 29): Tax Benefits and Charitable Contributions

On Thanksgiving, together with my family, I will pause, reflect, and give thanks for the good in my life, both personally and professionally. This year, I am especially grateful for my TAS family, for their time, energy, and dedication to making a positive impact in taxpayers’ lives. I also want to extend my gratitude to all of those working for America’s taxpayers and improving tax administration, including just a few: Low Income Taxpayer Clinics, Taxpayer Advocacy Panel volunteers, Volunteer Income Tax Assistance volunteers, Tax Counseling for the Elderly volunteers, Congress and its staff, and IRS staff and leadership.

During this time, in addition to giving thanks, many individuals and families volunteer to give back to our communities or give financial support to charitable organizations by making donations. The Tuesday following Thanksgiving has become what is known as “Giving Tuesday.” It is a day that encourages people to do good. Many choose to mark this day by donating to their favorite organizations. In honor of Giving Tuesday, many companies and brands offer matching gifts as their way of giving back. Check with your employer or the organization to see if they offer matching gifts.

I thought it would be helpful to share information about the tax benefits of charitable giving as an additional incentive to providing for our communities in need.

While many individuals, families, or businesses focus on the charitable benefits they can provide to a nonprofit organization, they should note that charitable contributions can be tax-deductible. However, not all donations may qualify for claiming a deduction on a tax return or provide an offset for taxes due. The IRS offers a helpful Can I Deduct My Charitable Contributions? tool to help users determine whether a donation is tax-deductible.  If it is deductible, taxpayers most often can claim it as an itemized deduction on Schedule A, Form 1040, Itemized Deductions. Taxpayers can deduct charitable contributions in an amount up to 50 percent of their income, per IRC § 170(b)(1)(A). However, individuals who do not itemize their deductions may deduct up to $300 ($600 for married individuals filing joint returns) from gross income for their qualified cash charitable contributions.  Find more information in IRS Publication 526, Charitable Contributions.

Types of Donations: What You Should Know

Charitable contributions can be cash contributions including those paid in cash, check, credit card, or debit card. They may also include unreimbursed out-of-pocket expenses made in connection with volunteer services to a qualifying charitable organization. However, donations of time spent volunteering are not tax-deductible. Donations may also be noncash contributions like donations of property. Depending on the amount of the donation of noncash property, there are additional rules in IRC § 170(f)(11) about demonstrating the amount of the donation.

Taxpayers age 70½ or older may also make qualified charitable distributions (QCD) from their Individual Retirement Arrangement (IRA), other Simplified Employee Pension Plan, or Savings Incentive Match Plan for Employees IRA to a qualified charitable organization. The maximum annual amount a taxpayer may exclude from income for a QCD is $100,000. A QCD may also count toward a taxpayer’s required minimum distribution for the year.

Confirming Receiving Organization Is Eligible

For a donation to be tax-deductible, the donation must be given to a qualified charitable organization – also known as a 501(c)(3) – such as a religious organization, nonprofit hospital or school, scientific organization, or service organization. The IRS offers a Tax Exempt Organizations Search Tool for taxpayers to find information about charities, including whether the organization is tax-exempt and eligible to receive tax-deductible charitable contributions. This tool does not list certain organizations that may be eligible for tax-deductible organizations, like churches or organizations and government entities. Taxpayers can also research whether the IRS has revoked an organization’s tax-exempt status.

Donations are not tax-deductible when they are made to private individuals, private foundations, charitable remainder trusts, or supporting organizations, or when they are to establish or maintain a donor-advised fund.

Documenting Your Donation

Like any other deduction claimed on a tax return, a taxpayer should keep contemporaneous documentation to substantiate the donation. Taxpayers need to keep records that demonstrate the amount donated, the date, and the name of the recipient. Depending on the amount and type of donation, taxpayers must satisfy very specific requirements to be entitled to a deduction for a charitable contribution, per IRC § 170. For donations of $250 or more, taxpayers must have a written acknowledgement from the receiving organization before they file their tax returns. The document must contain the amount of cash or a description of the property donated, a statement that the organization did not provide any goods or services in exchange, or if there were, there must be a good-faith estimate of the value of those goods and services, per IRC § 170(f)(8). Donations of property may also require a taxpayer to have an appraisal.

My Personal Experience

Over the past decade or more, I have had the honor of mentoring high school girls in underserved communities to help them define and pursue success on their terms, first by identifying their goals and then by guiding them on the journey. It was an incredible and rewarding experience for me as I believe I received much more from the girls and their experiences then they may have from me. I highly recommend everyone consider finding a charitable organization that shares your values and dreams and give of yourself. Together we can make a difference by unleashing the power of generosity, whether it is a simple gesture of making someone smile, helping a neighbor or stranger out, supporting people we care about, or sharing some of what we have to those less fortunate. Every act of generosity makes a difference, and everyone has something to contribute toward building a better world for all of us.

Wishing all a safe and healthy Thanksgiving as we begin the holiday season.