This guide explains what charitable donations are and how you can claim them as deductions on your tax return. It also covers how to keep records, which will assist you in determining what deductions you can claim as a result of your charitable donations. In addition, we’ve included information on other deductions you may be eligible for. The guide can also be used as a resource to help you plan for next year.
When completing your tax return, you can choose to claim the standard deduction or to itemize your deductions. Use the method that lowers your taxable income the most.
Standard deduction. The standard deduction reduces the amount of income on which you are taxed by a fixed amount that may change from one tax year to the next. Generally, anyone qualifies for the standard deduction. It is a benefit that eliminates the need for many taxpayers to itemize deductions, such as medical expenses and charitable donations, on Schedule A of Form 1040.
For 2007, the standard deductions are:
$5,350 for Single or Married Filing Separate filers
$10,700 for Married Filing Joint or Qualifying Widow(er) filers
$7,850 for Head of Household filers
There are additional standard deduction amounts if you are 65 years or older, or blind.
Itemization. Itemizing deductions makes sense when the total amount of allowable deductions exceeds the standard deduction. If you own a home, have deductible medical expenses, or give a significant amount to charity, you will probably be better off by itemizing your deductions.
You must itemize in order to claim a deduction for your charitable donations.
There are a few things to consider when you are thinking of making a charitable donation.
Charitable donations are only deductible in the year that you make them, and for an additional five years after the original deduction in the case of a carryover. With this in mind, consider the timing of your donations.
You can subtract either itemized or standard deductions from your adjusted gross income (AGI) to arrive at your taxable income. You can deduct charitable donations only when you itemize deductions. If your itemized deductions are less than the standard deduction, $10,700 in 2007 for those married filing jointly, then you should use the standard deduction because it will give you the largest deduction and the lowest taxable income.
Itemized deductions include the following:
Medical and dental expenses that exceed 7.5% of your AGI
Taxes paid
Home mortgage interest paid
Charitable donations
Casualty and theft losses
Miscellaneous itemized deductions that exceed 2% of your AGI
Timing your donations and expenses can help you get the most of your itemized deductions. If your itemized deductions are close to, but not over, the standard deduction, consider making a charitable donation that would put your itemized deductions over the amount of the standard deduction.
For example, if you have medical or miscellaneous itemized deductions this year that are close to or exceed your standard deduction, try increasing your itemized deductions this year. This is the time to contribute to your favorite charity. On the other hand, if you anticipate that most of your medical expenses and other deductible expenses will occur next year, try making a charitable donation next year to maximize deductions next year.
Recordkeeping is an essential part of an effective tax plan. Keeping complete and accurate records can prevent a negative outcome should your tax return be audited. Without clear documentation, the IRS may disallow unsubstantiated deductions and credits, which can require that you pay penalties and interest in addition to more taxes.
The following describes the types of donations that you can make and what kind of documentation you should keep to substantiate each type of donation.
Beginning in 2007, you must have proof that you made a donation—either a bank record or a written acknowedgement from the charitable organization—to claim a deduction for that donation on your tax return. The receipt or written acknowledgement must show the charity’s name, the date, and the amount of the donation.
For money donations of less than $250, you can use any of the following forms of documentation:
A canceled check
A legible account statement that includes the following details:
For a check donation—the check number, the amount, the date posted, and the payee
For a credit card donation—the amount, the transaction date, and the payee
For a donation made by electronic transfer—the amount, the date posted, and the payee
A receipt or written acknowledgement from the charity showing its name, the date, and the amount you contributed
For money donations of $250 or more, you must get documentation from the charity by the time you file your return for the year. If you file late or get an extension, you have until the date you file to provide documentation.
The charity’s written receipt or acknowledgement of your donation must include:
The amount of the donation.
An indication of any goods or services that you received, if any, other than certain token items or membership benefits.
A good faith estimate of the value of any goods or services that you received.
The charity may provide either a separate statement for each donation or periodic statements substantiating your donations.
Beginning in 2007, you must keep the following records for donations made by payroll deduction:
A pay stub, Form W-2, or other document furnished by your employer showing the amount withheld
A pledge card or other document from the organization stating that it doesn’t provide goods or services for donations made by payroll deduction
If you donate items, such as clothing or household goods, keep accurate records of exactly what you donate and the condition of each item. It’s also a good idea to take a picture of the property that you are donating.
For items donations of less than $500, keep the following records:
A receipt or acknowledgement letter from the organization
A written record showing the name of the organization, the date, the location, and a description of the donation, your cost/adjusted basis, and the method you used to determine the value of an item.
For item donations of $501 to $5,000, follow the rules listed above. In addition, you must record:
How you acquired the property, for example, by purchase, gift, bequest, inheritance, or exchange. For a security, keep the name of the issuer, the type of security, and whether it is regularly traded on a stock exchange or in an over-the-counter market.
The approximate date that you acquired the property or its creation was completed. If you have a reasonable cause for not being able to provide this information, attach an explanation to your return.
The cost or other basis and any adjustments of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more. This doesn’t apply to publicly traded securities.
The fair market value of the donation and how you figured it. If you had the property appraised, keep a signed copy of the appraisal.
Its cost or other basis. Include any reduction amount and how you figured it. If you choose the 50 percent limit instead of the special 30 percent limit, you must keep a record that lists the years you made the choice, donations for the current year, and any carryovers from earlier years.
The amount you claim as a deduction if you contribute less than your entire interest in the property during the tax year. Your records must include the amount of any previous deductions taken for this property and the name and address of each organization to which you contributed the other interests, the place where it is located or kept, and the name of any person in possession of the property other than the organization to whom you contributed.
The terms of any conditions attached to the gift.
A description and good faith estimate of the value of any goods or services given to you as a result of your donation, other than certain token items and membership benefits.
If your total deduction for all item donations for the year is more than $500, you must complete Section A of Form 8283 and attach it to your Form 1040.
If you contributed an item (or a group of similar items) for which you are claiming a deduction of more than $5,000, you must complete Section B of Form 8283. Omit publicly traded securities reportable in Section A. The recipient must complete and sign Part IV of Section B. With certain exceptions, items reported in Section B will require information based on a written appraisal by a qualified appraiser.
When you offer your services to a qualified organization and incur unreimbursed out-of-pocket expenses, keep the following written records:
Receipts showing your expenses
Written acknowledgement from the organization that contains:
A description of your services.
A statement describing any goods or services the organization provided to reimburse your expenses.
A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to you.
A statement of any intangible religious benefits provided to you.
You cannot deduct personal, living, or family expenses for services you perform unless you had to be away from home overnight. Out-of-pocket expenses must be:
Unreimbursed
Directly connected with the services
Expenses you incurred only because of the services you donated
Not personal, living, or family expenses
You must have reliable written records to claim expenses for car use. Generally, your written records are considered reliable if you made written notes regularly and at, or near the time you incurred the expenses.
Your written records must show the organization’s name and the date each time you used your car for a charitable purpose. If you use the standard rate, your records must show the number of miles you drove while you performed the charitable services. If you deduct actual expenses, your records must show the costs directly related to a charitable purpose.
For the year 2007, the standard rate is generally 14 cents per mile.
The following chart summarizes the records you must keep for each type of donation:
Donation |
Required Written Records |
Money, less than $250 |
Bank record or a written acknowledgement from the charity. Acceptable forms of proof include bank statements, canceled checks, and credit card statements. |
Money, $250 or more |
Acknowledgement letter from the organization. |
Out-of-pocket expenses of any amount |
1. Receipt or adequate record of the expense, and 2. Acknowledgement from the organization |
Payroll deductions of any amount |
1. Pay stubs, W-2, or other document from your employer listing the amount withheld, and 2. A pledge card or other document from the organization |
Item, value less than $250 |
1. A receipt or acknowledgement letter from the organization 2. A written record showing the name of organization, the date, location, and description of the donation, your basis in the property, fair market value, and method of valuation |
Item, value 250-$500 |
1. A receipt or acknowledgement letter from the organization 2. A written record including the information listed above (Item, value less than $250) |
Item, value $501-$5,000 |
1. A receipt or acknowledgement letter from the organization 2. A written record including the information listed above (Item, value less than $250) 3. A description of how the property was acquired and the date it was acquired |
Item, value over $5,000 |
All of the above plus a written appraisal unless the donated property is publicly traded stock valued at less than $10,000 |
The IRS allows you to claim a deduction equal to the fair market value of each item you donate to an eligible organization, with the exception of appreciated property.
This means that each item donation reduces your total taxable income in an amount equal to the fair market value of the item.
Example: You donate some used clothing, appliances, and household items in good condition, with a combined fair market value of $700 dollars. That $700 dollars is subtracted from your adjusted gross income when you enter your donations on your tax return and reduces your overall tax bill.
Special rules apply to property such as stocks, bonds, artwork, or collectibles, that have increased in value since the original acquisition.
The IRS requires that you take the lower of the cost/adjusted basis versus the current fair market value if you have owned the property for less than one year prior to the donation.
If you owned the appreciated property for more than one year, you can claim the deduction based either on the fair market value or on the cost/adjusted basis.
If you choose to take the fair market value as a deduction, then that deduction is subject to either the 30% or 20% charitable deduction limit depending upon the type of the organization.
If you choose to claim the cost/adjusted basis as a deduction, then that deduction is subject to either the 50% or 30% charitable deduction limit. See Charitable Deduction Limits.
Example: You donated a stock holding, which has increased in value, to the Salvation Army. You have held this stock for over one year prior to your donation and you are eligible to claim the current fair market value as a deduction.
When you take the fair market value as a deduction, your deduction limit for that property is:
30% of your adjusted gross income if you gave it to a 50% limit organization
20% of your adjusted gross income if you gave it to a 30% limit organization
Since the Salvation Army is a 50%-limit organization, you can deduct its fair market value up to 30% of your adjusted gross income.
See Limits by Organization for more information.
There are a few important pieces of information required by the IRS when you claim a deduction for the donation of inherited property.
Inherited assets are considered long-term (owned longer than a year), regardless of when the decedent acquired the property. In response to When did you acquire the item(s)?, select Various dates, more than one year ago to ensure that DeductionPro accurately calculates the property as a long-term holding. In addition, make sure to select Inheritance in response to How did you acquire the item(s) donated?
Generally, if you receive property as a gift, your holding period includes the holding period of the giver (the person who gave you the gift). For example, if your uncle purchased stock on 11/15/1999, and gave you the stock on May 6, 2005, your acquisition date is 11/15/1999. Your basis in the property is the same as the giver’s basis.
Exception: If you receive a gift that is worth less on the date of the gift than the giver’s adjusted basis, your acquisition date depends on whether the property has increased or decreased in value since you received it.
Value of Property on Date of Contribution |
Date Holding Period Begins |
Your Basis |
Greater than on date received |
Date giver acquired the property |
Giver’s basis |
Less than on date received |
Date your received the gift |
Value on the date you received the gift |
Example 1: Your uncle purchases XYZ stock on 11/15/1999 for $20,000 and gives it to you on 2/15/2005 when it is worth $15,000. You donate the stock on 1/15/2006 when it is worth $18,000. Your acquisition date is 11/15/1999 and your basis is $20,000.
Example 2: Assume the same facts as in Example 1 except the stock is worth $12,000 when you donate it. Your acquisition date is 2/15/2005 and your basis is $15,000.
The IRS requires you to get an appraisal if your item donation exceeds $5,000 in value. A description of the property along with the appraisal information is required in Section B, of Form 8283. For more information about appraising a charitable donation, refer to IRS Publication 561, Determining the Value of Donated Property.
Note: "Blue book value" is not valid as an automobile appraisal.
The Pension Protection Act of 2006 requires an appraisal for an item of clothing or a household item if:
The item is valued at over $500.
The item is not in good condition.
When you donate a vehicle to a charity, the charity must send you a Form 1098-C within 30 days of the sale that tells you the sales price. This sets the amount that can be deducted on your return. Now, if the charity fixes up the car and sells it, gives it to a needy person, or uses it in its charitable efforts, you can still deduct the vehicle's fair market value at the time of the gift.
To determine the fair market value, you can use the average retail price shown in used-car guides as a starting point. If the vehicle you plan to bestow upon a qualified organization—a high school shop class, for example— needs a lot of work, the allowable deduction is probably closer to salvage value than the average retail price shown in used-car guides.
On the other hand, if you give away a cream puff and the charity uses it for transportation or gives it to a needy person, you may deserve a larger deduction. You may need to visit used-car lots and talk with dealers or mechanics to arrive at a fair figure. If your donation is greater than $500, it's a good idea to get an appraisal and take a photo of the donated vehicle.
If your deduction is $250 or more, the charity must send you a written acknowledgement of the donation. The acknowledgement must include:
Your name and Social Security number,
The charity’s name and tax identification number,
The sales price,
The vehicle identification number, and
A statement certifying the vehicle was sold.
In addition:
If the charity intends to use the vehicle or make improvements to it, the acknowledgement must state how the vehicle will be used or what improvements will be made.
If the charity intends to sell the vehicle to a needy individual at a price significantly below fair market value, or gives the vehicle to a needy individual, the acknowledgement must state this.
If your deduction is more than $500, you must attach the written acknowledgement or Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to your return.
Do you have a favorite charity that you want to donate to? If you don’t and you are relying on an ad that you have seen or heard about donating to a charity, make sure that you are donating the car to a qualified charity. You can only claim a deduction if your donation goes to a tax-exempt organization that is recognized by the IRS.
The IRS provides a list of qualified charities in Publication 78, Cumulative List of Organizations, which you can find on the IRS Web site, www.irs.gov. You can also contact the IRS at 1-877-829-5500 (or for TTY/TDD help, call 1-800-829-4059) to see if the organization is qualified.
Religious organizations such as churches, synagogues, and mosques, as well as government entities do not have to register with the IRS. Your donations to these organizations are deductible.
Be aware that many organizations that run car donation programs are for-profit organizations that contract with the charity to run its vehicle donation program. These for-profit organizations may advertise, pick up your vehicle, and sell it at auction. The for-profit organizations may be paid a percentage of net proceeds. In some cases, the charity receives a flat fee for the vehicle that may not reflect the price of the car at auction. Towing, advertising, staffing, and other administrative costs may considerably reduce the amount that the charity eventually receives. You may want to contact the charity to see what percentage of the proceeds from your car it will receive.
If your car doesn’t run, don’t worry. Most charities will pick it up. Make sure that you transfer the title of the vehicle to the charity, or complete the paperwork that your state requires, to transfer ownership of the vehicle. Be sure to keep a copy of the transferred title. You don’t want to be held liable for the vehicle if an accident or parking violation occurs after you have given up possession of the vehicle.
For donations in 2007, the charity should send a written acknowledgement no later than 30 days after the donation. The IRS now provides a form, Form 1098-C, for donations of motor vehicles, boats, and airplanes for each donation greater than $500.
If the vehicle that you donate is worth $5,000 or less, you can enter either the amount from the charity’s acknowledgement letter or the fair market value of the donation on the Item Donations tab in DeductionPro.
If you plan to donate a vehicle worth over $5,000, a certified vehicle appraiser must appraise it. And remember, you can only claim vehicle donations if you itemize deductions.
A qualified organization is a nonprofit group that is religious, charitable, educational, scientific, or literary in purpose, or that works to prevent cruelty to children or animals. A qualified organization or charity, as defined by the IRS in Publication 526, Charitable Contributions, generally falls under one of the following categories:
A community chest, corporation, trust, fund, or foundation organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico).
War veterans’ organizations
Domestic fraternal societies
Certain nonprofit cemetery companies or corporations
The United States or any state, District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions
There is a limit to how much you can deduct for a single year, but few taxpayers have to worry about reaching the ceiling. The limits are based on the type of organization accepting the donation (whether it’s a 50% or a 30% limit organization), as well as the type of property you are donating (whether it is depreciated or appreciated property).
This list describes in general terms the types of organizations that are considered 50% limit organizations:
Churches, synagogues, mosques, and other religious organizations and their affiliates
Federal, state, and local government entities
Non-profit schools, hospitals, and volunteer fire companies
Public parks and recreational facilities
Certain private operating foundations
Non-profit agencies organized for charitable, religious, educational, scientific, or literary purposes. Most public charities fall into this category.
Examples of 50% limit organizations are:
American Breast Cancer Foundation
American Cancer Society
American Diabetes Association
Americans for AIDS Research
American Foundation for the Blind
American Heart Association
American Society for Prevention of Cruelty to Animals
Arthritis Foundation
Boy Scouts of America
CARE (Cooperative for Assistance and Relief Everywhere)
Cystic Fibrosis Association
Disabled American Veterans
Ducks Unlimited
Girl Scouts of America
Goodwill Industries
Habitat for Humanity
Junior Achievement
Make A Wish Foundation
March of Dimes
Multiple Sclerosis Foundation
Muscular Dystrophy Foundation
National Audubon Society
Red Cross
Salvation Army
September 11th Victims Relief Fund
The Humane Society
The Leukemia and Lymphoma Society
United Way
Veterans of Foreign Wars
Vietnam Veterans Memorial Fund
Vietnam Veterans of American Wars
YMCA
YWCA
Generally, 30% limit organizations are fraternal organizations, veterans organizations, and non-profit cemeteries. Examples of 30% limit organizations are the American Legion and National Public Radio.
The rules on charitable deduction limits are complicated; very few taxpayers need to worry about them. Basically, your deductions for gifts to public charities, colleges, and religious organizations can’t exceed 50% of your adjusted gross income. Within that overall limit, gifts of appreciated property, that is property that has increased in value since you originally acquired it, can’t total more than 30% of your adjusted gross income.
Stricter limits apply to gifts donated to certain types of organizations such as National Public Radio that fall into the 30% contribution limit. The current-year deduction for appreciated property given to 30% limit organizations can’t total more than 20% of your adjusted gross income.
The key to remember is that you can claim charitable-donation deductions of up to 20% of your adjusted gross income without worrying about the complexities of the IRS contribution limits rules. In fact, unless you’re giving appreciated property, you don’t need to concern yourself with these rules unless you plan on claiming charitable-donation deductions of 30% to 50% of your adjusted gross income.
If you give more than you can deduct in a single year based on these contribution limits, you can carryover the excess deductions to next year’s return. Carryover deductions can only be used for up to five years after the original deduction. The IRS will not allow you to take a carryover deduction after five years have passed. DeductionPro does not determine any carryover deductions you might have because this value cannot be accurately calculated until you begin preparing your tax return. See Carryovers for more information on this topic.
The following describe the three main rules that determine your charitable deduction limits:
For items such as cash, out-of-pocket expenses, and non-appreciated property that you have donated to a 50% limit organization, the 50% limit applies. So for this type of donation, you cannot claim more than 50% of your adjusted gross income as a deduction.
Most organizations you donate to will be able to tell you if the 50% limit applies to them. If you need help determining what category an organization falls into, check IRS Publication 78. The following types of organizations are 50% limit organizations:
Churches and their conventions or associations
Educational organizations with a regular faculty, curriculum, and enrolled students who attend classes on-site
Hospitals and certain associated medical research organizations
Organizations formed to receive and distribute donations on behalf of publicly supported state and municipal colleges and universities
Federal, state, the District of Columbia, a U.S. possession (including Puerto Rico), or Indian tribal governments or government subdivisions that perform substantial government functions
Publicly supported corporations, trusts, or community chests, funds, or foundations operated for charitable, religious, educational, scientific, or literary purposes, to prevent cruelty to children or animals, or to foster certain national or international amateur sports competition
Organizations that may not qualify as publicly supported but meet tests showing they respond to the general public’s needs. In general, more than one-third of their support must come either from publicly supported organizations or from other qualified individuals
Most organizations operated for the benefit of, or controlled by, qualifying organizations
Private operating foundations
Private non-operating foundations that make qualifying distributions of 100 percent of contributions within two and a half months following the year they receive the contribution. You’ll need to attach confirmation from the foundation that it distributed your donation on time.
A private foundation whose contributions are pooled into a common fund and whose substantial contributors can specify which public charities will receive funds. The foundation must distribute the income within two and a half months following the tax year it received the donation, and the donated property must be distributed not later than one year after the donor’s death or the spouse’s death if he or she can name the recipients.
You can donate up to 30% of your adjusted gross income if you donate:
Appreciated capital gain property held longer than one year that you donate to a 50% limit organization. However, the 50% limit applies if you choose to claim your cost/adjusted basis, rather than the fair market value.
Property other than capital gain property you donated for the organization’s use.
Property other than capital gain property you donated to qualified organizations other than 50% limit organizations. This includes gifts to veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private non-operating foundations.
You may deduct 20% of your adjusted gross income for any gifts of capital gain property you donate to qualified organizations other than 50% limit organizations.
If your income is over $156,400 ($78,200 if married filing a separate return), your itemized deductions are reduced by the smaller of (a) 80% of your itemized deductions other than medical expenses and (b) 3% of the excess of your adjusted gross income over the cutoff. DeductionPro does not calculate the reduction for you.
You can carry over donations that exceed the adjusted gross income limits until it is used up or for up to five years, but not beyond. The total deduction cannot exceed 50 percent of your adjusted gross income for that year. You must figure the same percentage limits for carryovers that you originally used. For example, donations subject to the 20% limit are still 20% limit contributions.
For each category of contribution, you can deduct carryover contributions only after first deducting all allowable contributions in that category for the current year. If you have carryovers from two or more previous years, use the carryover from the earlier year first.
DeductionPro does not determine any carryover deductions you might have because this value cannot be accurately calculated until you begin preparing your tax return.