6.4 Charitable contributions

Charitable contributions are a key component of itemized deductions for individuals. They allow taxpayers to reduce their taxable income by donating to qualifying organizations, with various rules and limitations based on the type of donation and recipient.

Understanding the intricacies of charitable contribution deductions is crucial for maximizing tax benefits. From AGI-based limitations to recordkeeping requirements, this topic covers essential aspects of charitable giving within the broader context of itemized deductions.

Charitable Contribution Deductions

Qualifying Organizations

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Top images from around the web for Qualifying Organizations

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  CRCS / New Jersey PACE Receives 501c3 Designation | Center for Regenerative Community Solutions View original

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  Example 501c3 Letter | Charitable organizations typically ha… | Flickr View original

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• IRC Section 501(c)(3) organizations serve as primary recipients for tax-deductible contributions (religious institutions, educational facilities, scientific organizations)
• Veterans' organizations, fraternal societies, and cemetery companies may qualify under specific IRC provisions
• Domestic governmental units accept charitable contributions for public purposes (states, cities, Native American tribal governments)
• Private foundations and public charities have distinct qualification criteria and potential deduction limitations
• Foreign charitable organizations generally do not qualify, with exceptions for certain Canadian, Mexican, and Israeli charities under tax treaties
• IRS maintains Tax Exempt Organization Search database to verify eligibility for tax-deductible contributions

Types of Contributions

• Cash contributions deductible at full face value, subject to limitations and substantiation requirements
• Non-cash contributions typically deductible at fair market value at time of donation (property, goods)
• Appreciated property donations have special rules, including potential capital gains tax implications and need for qualified appraisals for high-value items
• Service contributions not deductible, but related out-of-pocket expenses may be
• Quid pro quo contributions require reducing deduction by fair market value of benefit received
• Vehicle, boat, and airplane donations have specific valuation and reporting requirements
• Donations to individuals, regardless of need, not tax-deductible as charitable contributions

Deductibility of Contributions

Cash and Property Donations

• Cash donations to public charities generally limited to 60% of adjusted gross income (AGI)
• Appreciated capital gain property contributions to public charities typically limited to 30% of AGI
• Private foundation donations more restrictive, generally 30% of AGI for cash and 20% for appreciated property
• Conservation easement contributions can be up to 50% of AGI, with special rules for farmers and ranchers
• Excess contributions beyond AGI limitations can be carried forward for up to five years
• AGI limitation percentages may be temporarily modified by legislation (national emergencies, encourage specific giving)
• Corporate deductions generally limited to 10% of taxable income, subject to adjustments

Special Considerations

• Donations of services not deductible, but related expenses may be (travel costs, supplies)
• Quid pro quo contributions require reducing deduction by value of goods or services received (charity dinner tickets)
• Vehicle donations have specific rules for valuation and reporting (Form 1098-C for vehicles over $500)
• Appreciated property donations may have capital gains tax implications (stocks held for over a year)

Limitations on Deductions

AGI-Based Limitations

• Cash to public charities: 60% of AGI (exceptions apply)
• Appreciated property to public charities: 30% of AGI
• Donations to private foundations: 30% of AGI for cash, 20% for appreciated property
• Conservation easements: up to 50% of AGI (special rules for farmers and ranchers)
• Excess contributions can be carried forward for 5 years
• Corporate donations generally limited to 10% of taxable income

Additional Considerations

• AGI limitations may be modified by temporary legislation (disaster relief, pandemic response)
• Special rules for donations of food inventory (enhanced deductions for certain businesses)
• Limitations may differ for donations of capital gain property vs. ordinary income property
• Married couples filing jointly have limitations applied to their combined AGI
• Certain high-income taxpayers may face additional limitations or phase-outs

Recordkeeping Requirements

Documentation for Cash Donations

• Under $250: bank record, credit card statement, or written communication from charity suffices
• $250 or more: contemporaneous written acknowledgment from charity required, detailing specific donation information
• Written acknowledgments must include organization name, donation amount, and statement of goods or services provided (if any)
• Electronic records acceptable if they meet IRS requirements (emails, digital receipts)

Non-Cash Donation Records

• Under $250: receipt from organization and records of property's fair market value
• $250 -$500: contemporaneous written acknowledgment and fair market value records
• $500 -$5,000: completion of Section A of IRS Form 8283 required
• Over $5,000: qualified appraisal and completion of Section B of Form 8283, signed by appraiser and charitable organization
• Vehicle donations over $500 require Form 1098-C
• Maintain all charitable contribution records for at least 3 years from tax return filing date
• Photos or videos of donated items can support claimed values (household goods, artwork)