A charitable donation tax deduction can lower your tax liability if you qualify.
Charitable donations may help decrease your tax liability slightly. Whether you donate money or physical goods, you may be able to claim the charitable donation tax deduction. Knowing how to get a deduction, which charities qualify, and how much of a deduction you get is important before you get started.
How to Get a Tax Deduction
To claim the tax deduction, you must first itemize your deductions. After the Tax Cuts and Jobs Act, many taxpayers don’t have enough deductions to make it worth it. The standard deduction for the 2019 tax year is as follows:
- Single filers - $12,200
- Married filing joint - $24,400
If you have deductions that total more than the limit for your filing status, then you can think about taking charitable contribution deductions with the following guidelines:
- You must donate to a tax-exempt organization with 501 (c)(3) status with the IRS. A few examples include churches, United Way, Catholic Charities, and the Red Cross.
- You must have proof of your contributions. Monetary contributions need proof of payment whether it’s a canceled check or credit card statement. You’ll need a receipt from the charity that states the amount donated, type of payment, and the date. If you pay in cash, the receipt is crucial.
- If you have valuable items, you may need more documentation. The IRS looks closely at cash donations larger than $250, which means you’ll need ample proof from the charity. They also look closely at physical donations. Any items valued at more than $5,000 need an appraisal.
In order to claim the deduction, you must file Schedule A – Itemized Deductions. You’ll file all deductions on this form, not just your charitable deductions. A few examples include mortgage interest, property taxes, and medical expenses.
Also, if you deduct more than $500 in physical goods, you must complete IRS Form 8283 along with your Schedule A.
How Much can you Deduct?
The Tax Cuts and Jobs Act allows you to deduct up to 60% of your adjusted gross income in charitable contributions. Any appreciated assets that you’ve held for at least one year are also generally deductible at an amount of 30% of your adjusted gross income.
Finding the Right Charity
Before you donate to just any charity, make sure you know if it’s reputable. Any charity should be willing to share their 501 (c)(3) status with you. If not, they probably aren’t a recognized charity and your contributions won’t be tax-deductible. If you’d like to look for yourself, check out the IRS’ database or Charity Navigator.
The charitable donation tax deduction is a valuable deduction when done right. Consult with your tax advisor about any contributions you are unsure of and ensure that you have the right proof of your donation. With the higher standard deductions, it may not be worth the time and effort necessary to take the itemized deductions, but it’s always worth considering.