You get the added little boost of taking a tax deduction for your generosity when you donate to a charity, but the rules are just complicated enough to make some people think twice. Charitable donations go on line 40 of your Form 1040 tax return along with all your other itemized deductions. That’s the easy part. What you have to do to get to the number you enter on line 40 will take a little more work.
Charitable donations go on line 40 on the IRS Form 1040.
You Must Itemize to Claim Donations
If you look at line 40 on your tax return, you’ll see that it asks you to enter your “itemized deductions or your standard deduction.” You have a choice to make, because you can’t take both. You’ll want to take the option that amounts to more. For many people, the standard deduction for their filing status is greater than the total of all their itemized deductions, so taking the standard deduction is the better deal. It reduces their taxable income the most.
But the only way to claim a deduction for charitable donations is to itemize. You must complete Schedule A listing all the itemized deductions you want to claim, not just your charitable contributions. Completing it gives you the total that you would then enter on line 40.
How Much of Your Donation Can You Deduct?
Did you receive anything in exchange for your donation? Did you pay $500 for a bottle of wine that normally sells for $50 because the cost over and above $50 goes to a charity? Unfortunately, you can’t claim the full $500. You must deduct the fair market value of anything you received in exchange for your gift, so your actual deduction in this case is $450.
According to the Internal Revenue Service, “fair market value” is what an item of property would likely sell for in a transaction between two individuals, neither of whom are under any duress to complete the sale.
If you donate property instead of cash, you most likely can’t claim a deduction for the full amount you paid for it, unless you purchased it on the day you donated it. Fair market value is based on what someone would pay for it in its current condition, and the IRS says that clothing and household goods must be in good condition to qualify.
The amount of your deduction is also limited by your adjusted gross income, which appears on line 37 of your 1040 tax return. You can typically claim total donations of up to 50 percent of your AGI, but this amount is less in some cases. For example, gifts made to veterans' organizations and some private foundations are limited to 30 percent of your AGI, as are donations of appreciated property. This means that if your adjusted gross income is $80,000, you can claim a deduction for charitable donations of up to $40,000 in most cases, but only up to $24,000 to some charities.
Completing Form 8283
You’re not finished filling out tax forms yet. You might also have to deal with IRS Form 8283 in addition to Schedule A and attach this to your tax return as well.
Form 8283 is required for donations of property valued at more than $500. You must complete Section A of Form 8283 if the property was worth $501 to $5,000. If it was worth $5,001 or more, you must complete Sections A and B and need an appraisal to attest to the value. And if you were really generous and donated something worth more than $500,000, you have to attach the appraisal to your tax return when you file it.
You Must Give to a Qualified Charity
All this is for naught unless you give your donation to what the IRS calls a "qualified charity." Gifts made to individuals aren’t tax deductible. The IRS has an interactive tool on its website where you can enter the name of the charity you’re considering, and it will tell you whether it makes the list of approved organizations. You might also want to check with a tax professional.
As a general rule, almost all large, well-known organizations like the American Red Cross or Goodwill qualify, and so do most churches, schools, veterans’ organizations and nonprofit volunteer fire departments. Political organizations and candidates do not.
Of course, you’ll want to get a receipt from the organization for anything you donate, and in some cases, a receipt is required. You can prove small cash transactions with bank records if the IRS ever calls them into question as long as the date, the amount and the name of the organization all appear there. But you’ll also need a written acknowledgement from the charity for cash or property contributions valued at $250 or more. The charity must also state in the acknowledgement whether you received anything in exchange for your donation and, if so, how much it was worth.
- IRS: Topic Number 506 Charitable Contributions
- IRS: Eight Tips for Deducting Charitable Contributions
- USTaxCenter: What Federal Income Tax Form Do I Use to Deduct Charitable Donations?
- IRS: Charitable Contribution Deductions
- TurboTax: Charitable Contributions
- IRS: Form 1040: U.S. Individual Income Tax Return
- Internal Revenue Service, "Charitable Contribution Deductions: Qualified Organizations." Accessed July 13, 2020.
- Internal Revenue Service. "Publication 526: Charitable Contributions," Page 3. Accessed July 13, 2020.
- Internal Revenue Service. "Topic No. 506 Charitable Contributions." Accessed July 13, 2020.
- Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Page 5. Accessed July 13, 2020.
- Internal Revenue Service. "Publication 526: Charitable Contributions," Page 7. Accessed July 13, 2020.
- Internal Revenue Service. "Publication 526: Charitable Contributions," Pages 8 & 9. Accessed July 13, 2020.
- Internal Revenue Service. "Publication 526: Charitable Contributions." Pages 20–21. Accessed July 13, 2020.
- Internal Revenue Service. "Publication 526: Charitable Contributions," Pages 14–16. Accessed July 13, 2020.
- Internal Revenue Service. "Charitable Contribution Deductions." Accessed July 13, 2020.
- Internal Revenue Service. "Publication 526: Charitable Contributions," Page 20. Accessed July 13, 2020.
- Internal Revenue Service. "Charitable Contribution Deductions." Accessed Sept. 29, 2020.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.