What is the Tax Benefit of Donating to Charity?

Donating to charitable organizations is a powerful way to actively support meaningful causes and promote change in the world. Charitable giving looks different for every individual. You might make regular monetary contributions, donate household goods and vehicles, or contribute your valuable time and efforts to organizations that you believe in. All these contributions come with tax benefits when you know how to file them properly, and you can learn everything you need to know from us at Pasquesi Sheppard LLC.

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Tax Deductions for Charitable Giving

If you give a significant amount of money or assets to qualifying charities over the year, you may be eligible for valuable tax deductions. Your total charitable giving must exceed the standard deduction for your income bracket to apply. Standard deductions for upcoming tax years are:

Filing Status2023 Standard Deduction2024 Standard Deduction
Married filing separately$13,850$14,600
Married filing jointly$27,700$29,200
Head of household$20,800$21,900

If your donations exceed the standard deductions, you can typically take a charitable giving tax deduction that equals up to 60% of your adjusted gross income (AGI). However, the following are some exceptions:

  • Appreciated assets such as stock: Up to 30% of your AGI.
  • Noncash contributions such as goods to non-qualifying organizations: 20% to 50% of your AGI.
  • Noncash contributions to organizations that qualify as public charities: 50% of your AGI.
  • Appreciated capital gain property to non-qualifying organizations: 20% of your AGI.
  • Appreciated capital gain property to qualifying organizations: 30% of your AGI.

Determining the Value of a Charitable Contribution

It’s not always easy to determine the proper value of a charitable contribution. If you receive something in exchange for your contribution, you must deduct the fair market value of that item from your contribution. 

For example, if you give to a charity that delivers a T-shirt in exchange for your contribution, you have to subtract the value of the shirt from what you gave to determine the tax-deductible amount of your charitable giving. If you pay for the privilege of attending a charity banquet, you must deduct the value of your meal and other amenities from the cost of your ticket.

If you donate goods to a charity such as the Salvation Army or Goodwill, you can deduct the fair market value of those items. If you donate a vehicle that’s worth more than $500, you may deduct the smaller of the gross proceeds from the sale of the car or the car’s fair market value. If the car sells for less than $500, you may deduct the smaller of the vehicle’s fair market value or $500.

If you make a donation or transfer property to a charitable organization and receive a state or local tax credit in return for the transaction, then you must deduct the amount of your tax credit from the contribution. This is true even if you can’t claim the tax credit in the same year. Some exclusions apply, so it’s best to work with a qualified tax professional when navigating these types of transactions.

Qualifying Entities for Charitable Contributions

Section 170(c) of the Internal Revenue Code defines qualifying organizations to which you can make charitable contributions. These include:

  • Federal, state, and local governments, provided that your contribution is made for public purposes.
  • War veterans’ groups.
  • Religious organizations such as churches, temples, synagogues, and mosques.
  • Nonprofit schools.
  • Nonprofit hospitals.
  • Nonprofit volunteer fire companies.
  • Domestic fraternal societies operating under the lodge system, provided that the contribution is used exclusively for charitable purposes.
  • A trust, fund, foundation, corporation, or community chest organized and operated for charitable, educational, scientific, literary, or religious purposes, or for the prevention of cruelty to children or animals.
  • Expenses for a student living with you who is sponsored by a qualified organization.
  • Out-of-pocket expenses incurred when serving as a volunteer with a qualified organization.
  • Nonprofit cemeteries, provided that the funds are dedicated to the care of the cemetery as a whole and not to the care of a specific lot or mausoleum crypt.

Your donations do not qualify as charitable contributions under the tax law if they go to:

  • Foreign organizations outside the United States, with the exception of some Mexican, Canadian, and Israeli charities.
  • Civic leagues, labor unions, and chambers of commerce.
  • Social and sports clubs.
  • Homeowners associations.
  • Political groups or candidates running for public office.
  • Groups that run for personal profit.
  • Groups that lobby for changes to the law.
  • Individuals, such as those fundraising on GoFundMe and similar platforms.

An organization does not have to claim 501(c)(3) status to qualify as a nonprofit that’s eligible for charitable contributions. Though this designation helps to clarify matters, there are some exceptions. The IRS provides an online Tax Exempt Organization Search to help you clarify your contributions.

What To Provide for Tax-Deductible Charity Donations

You must complete Schedule A of IRS Form 1040 for all charitable contributions. You need to have records of all cash donations in the form of your bank records, payroll deduction records, or receipts from the charitable organization.

For noncash donations of less than $250, you must have a receipt from the charitable organization that includes the date, location, and description of the contribution. If you make a noncash donation worth $250 or more, you must have both a bank record and a receipt from the organization detailing your donation. For noncash donations of $5,000 or more, you will need a written appraisal of the property from a qualified appraiser. 

You may also need to provide additional forms to the IRS, including:

  • Form 8283: Complete if you claim more than $500 in noncash contributions, such as goods or vehicles.
  • IRS Form 1040 Section B: Complete if your noncash contributions exceed $5,000.

File Your Charitable Contributions Correctly

It’s important to file your charitable contributions properly to enjoy the appropriate tax benefits for these donations. Working with a professional can help you streamline your personal finances. Our skilled team members at Pasquesi Sheppard LLC will make sure you understand how to submit all the necessary paperwork for your charitable donations so you can receive the maximum tax benefit.

coffee mug near open folder with tax withholding paper by Kelly Sikkema is licensed with Unsplash License