How to ensure your charitable contributions are tax deductible

Every year, lots of us wait until the end of the year to donate to charities. For me, it’s a matter of using up whatever is left of my annual charitable contribution budget after I’ve donated to my church and  whatever fundraising walks/runs my friends and their kids participated in throughout the year. 

But let’s be honest. The reason I make sure to donate that budget remainder before December 31 instead of doing it in January is all about taxes. I want to reduce my taxes by increasing my itemized charitable deductions. If I’m going to donate money anyway, I may as well get tax deductions as a reward, right? 

Who can deduct charitable contributions?

The short answer to this question is this: only those who itemize. 

In order to deduct your charitable contributions, you have to itemize deductions when you file your federal income taxes. If the deductions you can claim are less than your standard deduction, you’re better off claiming the standard deduction and not itemizing at all. In that situation, you won’t be able to deduct the value of your donations. 

Mortgage and property tax deductions put most homeowners over the standard deduction threshold, so charitable contributions can then be claimed as tax deductions. 

Charitable deduction limits

In addition to the requirement that you itemize deductions, there are also limits to the amount you can deduct. The limits generally only kick in if you’ve donated more than 20% of your adjusted gross income, but there are different thresholds for different kind of donations. Think cash vs. capital gains vs non-cash assets like stocks or property. 

Explaining the details of those varying limits would be an entire series of blog articles, so we can’t cover them in this overview. Just know that if your charitable deductions amount to a sizable portion of your taxable income, you should consult your tax advisor for guidance. 

What charities qualify as tax deductible?

The IRS only lets you deduct donations that you make to “qualified organizations.” You can find out if an organization qualifies by simply asking them or by checking their solicitation mailings or website. Most qualified organizations clearly state their tax status on their websites and on their mailers. The most common indicator is a statement confirming that an entity is registered as a “501(c)(3) organization.” 

You can also confirm a charity’s tax status by checking the charity database on the IRS website or calling the IRS at 877-829-5500. You can also consult one of the third-party charity evaluation sites that we described in our responsible charities article last fall. A great example is Charity Navigator. Note that sometimes churches, synagogues, temples and mosques do not appear in online charity lists, but the IRS does consider them to be charitable institutions and donations to them are qualified deductions. 

Basically, if you are in doubt, it is better to be safe than sorry, especially when verifying an organizations is so easy. 

What donations are NOT tax deductible? 

Sometimes, donating money to a deserving cause doesn’t qualify as tax deductible. Even though the money is given with the same charitable intent, the funds are not donated to and disbursed by a qualified charity. 

For example, this year I donated to three fundraisers fighting against cancer. One was to the American Cancer Society’s Making Strides Against Breast Cancer walk and another was to the Leukemia & Lymphoma Society’s Light the Night Walk. Both the ACS and LLS are 501(c)(3) organizations, so those donations are tax deductible.  

My third cancer donation, though, was to a GoFundMe page raising money for a family friend’s son who had leukemia. Although this was a donation to a cancer patient, I can’t claim it as a tax deduction. Why? Because the donation was made to the family rather than through a qualified organization. 

General tips on getting credit for charitable donations 

When considering where to donate, keep in mind these two key tips: 

1. Documentation is key. If you can’t prove you made the donation, the IRS won’t accept it. Keep receipts for money and any clothes, furniture or household goods you donate to charities. The receipt should show the date, the charity, the value of the donation and who donated the goods. If you are using a bank record or credit card statement as a receipt, it needs to clearly state the name of the charity along with the date and amount of your contribution. 
2. Lower your deduction if you receive any incentives. If you receive a meal or a gift as part of your donation, you need to subtract that from the total amount of your donation. Many charities will list the deductible cost for a fundraising dinner on their websites so you’ll know exactly how much to deduct. 

And I want to remind you, as a final note, that if you have any questions about a specific donation or charity in regards to your taxes, you should consult with your tax advisor.