What to Know About Charitable Contributions and Tax Deductions

Making charitable contributions is a wonderful way to support causes you care about, and the U.S. tax code often provides an incentive for your generosity. If you donate to qualified organizations, you may be able to deduct these contributions on your federal income tax return, potentially reducing your taxable income. However, understanding the rules, limitations, and proper documentation is crucial to ensure your donations translate into tax savings.

Who Can Deduct Charitable Contributions?

Historically, only taxpayers who itemized their deductions could claim charitable contributions. However, for Tax Year 2025 and beyond, there's a new provision that expands this benefit:

• Itemizers: If you choose to itemize your deductions (meaning your total itemized deductions exceed your standard deduction), you can generally deduct cash and non-cash contributions made to qualified organizations, subject to certain limits.

• Non-Itemizers (New for 2025): For tax years 2025 through 2028, a new above-the-line deduction allows taxpayers who do not itemize to deduct a limited amount of cash contributions. Single taxpayers can deduct up to $1,000, and married couples filing jointly can deduct up to $2,000 for cash contributions made during the year. This is a significant change that allows more taxpayers to benefit from their charitable giving.   

What Qualifies as a Charitable Contribution?

To be deductible, your contribution must be made to a qualified organization. These are generally organizations that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. Most commonly, these are organizations designated as 501(c)(3) by the IRS.

Types of Deductible Contributions:

• Cash Contributions: This includes donations made by cash, check, electronic funds transfer, or credit card.

• Non-Cash Contributions: This includes donations of property such such as clothing, household items, vehicles, or appreciated assets like stocks or real estate. The value of non-cash contributions is generally their fair market value at the time of the donation.

What is NOT Deductible:

• Contributions to individuals.

• Donations to political organizations or candidates.

• The value of your time or services (e.g., volunteering hours).

• The cost of raffle tickets, bingo, or other games of chance.

• The portion of a donation for which you receive a benefit (e.g., the cost of a dinner at a charity gala that exceeds the value of the meal).

Deduction Limits Based on Adjusted Gross Income (AGI)

The amount of charitable contributions you can deduct in a single year is generally limited to a percentage of your Adjusted Gross Income (AGI). These limits vary depending on the type of contribution and the type of organization:

• Cash Contributions: For most public charities, cash contributions are generally deductible up to 60% of your AGI.

• Non-Cash Contributions:

  • Ordinary Income Property: If you donate property that would result in ordinary income or short-term capital gain if sold (e.g., inventory, property held for one year or less), your deduction is generally limited to your cost basis in the property, and typically capped at 50% of your AGI.

  • Appreciated Capital Gain Property: If you donate appreciated property held for more than one year (e.g., stocks, real estate), your deduction is generally limited to 30% of your AGI.

Any contributions exceeding these AGI limits in a given year can typically be carried forward and deducted in future tax years for up to five years.

The Importance of Record-Keeping

Meticulous record-keeping is absolutely essential when claiming charitable contributions. Without proper documentation, the IRS may disallow your deductions if your return is audited.

Required Documentation:

• For Cash Contributions:

  • For contributions under $250: A bank record (such as a canceled check or bank statement) or a written communication from the charity showing the name of the organization, the date of the contribution, and the amount.

  • For contributions of $250 or more: A written acknowledgment from the charity (a "contemporaneous written acknowledgment") that includes the amount of the cash contribution, whether the organization provided any goods or services in return for the contribution, and a description and good faith estimate of the value of any such goods or services.

• For Non-Cash Contributions:

  • For contributions under $250: A receipt from the charity showing the name of the organization, the date and location of the contribution, and a reasonably detailed description of the property.

  • For contributions of $250 to $500: The same as above, plus a written acknowledgment from the charity.

  • For contributions over $500: In addition to the written acknowledgment, you'll need to complete Form 8283, Noncash Charitable Contributions, and attach it to your tax return.

  • For contributions over $5,000 (excluding publicly traded securities): You will generally need a qualified appraisal of the donated property.

Why Professional Guidance is Invaluable

While the concept of deducting charitable contributions seems straightforward, the rules surrounding qualified organizations, different types of property, AGI limitations, and especially the new non-itemizer deduction for 2025, can be complex. Errors in valuation or documentation can lead to disallowed deductions and potential IRS inquiries.

A qualified tax professional can:

• Determine Eligibility: Help you confirm if your chosen charities are qualified organizations and if your contributions meet the IRS criteria for deductibility.

• Maximize Your Deduction: Advise on the optimal way to structure your donations (cash vs. appreciated property) to maximize your tax benefits within the AGI limits.

• Navigate Non-Cash Valuations: Provide guidance on properly valuing non-cash contributions, especially for larger donations that may require appraisals.

• Ensure Proper Documentation: Help you understand and maintain the necessary records to support your deductions.

• Handle Carryovers: Track and apply any unused charitable contribution carryovers from previous years.

• Integrate with Overall Tax Plan: Assist in incorporating your charitable giving into your broader financial and tax strategy.

The information provided here is for general educational purposes only and should not be considered personalized tax advice. Tax laws are complex and individual situations vary widely. For guidance on your specific charitable contributions and their tax implications, it is highly recommended to consult with a qualified tax professional.