Charitable giving is good for more than just your soul. Play your cards right and it can be good for your wallet, too. Here’s a crib sheet on how to make sure your good deeds are properly rewarded at tax return time.
Stepping up to the plate
You probably know you can claim write-offs for contributions of cash and other stuff to IRS-approved charitable organizations like United Way and Goodwill. But what you might not realize is that not everyone — or every contribution — qualifies.
First off, you won’t gain any tax savings from charitable contributions unless you itemize deductions. And in most cases, people who don’t own homes don’t itemize because their standard-deduction amount — $12,000 for singles or $24,000 for joint filers for 2018; $12,200 and $24,400 for 2019 — exceeds their total itemized deductions. So unless your total itemized deductions for this year, including any charitable contributions, will exceed the magic threshold, you won’t get any tax benefits for your generosity. Sorry — sometimes being kind can be cruel.
Also, even if you’ve met both of the requirements listed above, chances are you aren’t going to be able to deduct a thing if you don’t have the proper documentation. Just what you need to prove to the IRS that you actually made a contribution depends on the size (and nature — i.e., cash vs. noncash) of your contribution. And remember, if you go to, say, a benefit that provides dinner or some other gesture of thanks, you can’t deduct the value of those goods or services. Your deduction should be the net amount of your gift. (The charity should assign a value to anything it gives donors.)
Here’s a breakdown of the type of documentation you’ll need based on what you give and how much:
Documentation for contributions under $250
For cash contributions of less than $250, you should get a written receipt from the organization showing its name, the date and place of the contribution and the amount given. Alternatively, you can save any canceled checks, bank records, or credit card statements that prove your deduction.
For noncash contributions of $250 or less, ask for a receipt showing the organization’s name, the date and place of the contribution and a detailed description of what you’re giving (you may have to fill in this last part yourself).
Documentation for contributions of $250 or more
For contributions of $250 or more, canceled checks or other evidence supplied by you isn’t good enough for Uncle Sam. Instead you must get a written acknowledgment from the charity. If you don’t and get audited, your deduction will go up in smoke even though there may be absolutely no doubt that you did, in fact, make all the contributions you’re claiming. In addition, you must have those written acknowledgments in hand by the time you file your tax return.
If you give cash, the acknowledgment should note the amount. If you give other stuff (for example, an expensive bottle of wine for a charitable silent auction), the acknowledgment must describe it, but the charity doesn’t have to value it. That’s your responsibility. Clearly this is more art than science, but just don’t get carried away.
Noncash contributions over $500 and $5,000
If you contribute noncash stuff worth over $500 to one or more charities during the year, you must file Form 8283 (Noncash Charitable Contributions) with your 1040. Fortunately, it’s pretty easy to fill out.
Things get a little tricky, however, when you contribute noncash stuff worth more than $5,000. In this case, you must obtain a written appraisal of the value of the item(s) and complete Section B of Form 8283. Both the appraiser and a representative of the charity must then sign the form.
Unfortunately, you can’t write off the appraisal fee as a charitable contribution.
The good news: You don’t need an appraisal for contributions of publicly traded securities worth over $5,000. However, when you contribute appreciated securities in any amount, please make sure you give away only those you’ve owned for more than one year. Otherwise, your deduction will be limited to cost rather than current market value.
Warning: If you contribute valuable noncash items (other than securities), your deduction is limited to the item’s tax basis (generally what it cost) unless the item is used in the charity’s exempt purpose. For example, if you donate a painting with a basis of $2,000 and a fair market value (FMV) of $50,000 to a children’s shelter, your deduction will be only $2,000. But if you donate the painting to a museum that will display it in a gallery, you can deduct the $50,000 FMV. Big difference!
Special rules for used clothes and household items
For charitable donations of used clothes and household items, you get no deductions unless the stuff is in “good” condition or better. “Household items” include furniture and furnishings, electronics, appliances, linens, and the like. In other words, no charitable write-offs for donated junk. Under an exception, you’re allowed a write-off for any single item, regardless of its condition, that is appraised at over $500 (see IRS Form 8283 for details). For example, this exception could apply to an antique desk that is pretty valuable even though it’s only in “fair” condition.
Special rules for donated vehicles
Charitable donations of motor vehicles fall under strict rules if your claimed deduction exceeds $500. Specifically, your write-off depends on how the donated vehicle is used by the charitable organization. If the organization sells it without using it significantly for charitable purposes or making significant improvements, your deduction is generally limited to the amount of gross sales proceeds received by the charity. In addition, charities are required to issue detailed written acknowledgments on Form 1098-C to vehicle donors. The IRS also gets a copy. The IRS can then check to see if the information on these forms matches up with donors’ tax returns.
Income-based limitations on charitable deductions
Now, if you’re really feeling generous, you might run into some additional limitations. Depending on the exact type of charity and whether you contribute cash or other items, your write-off can potentially be limited to 20%, 30% or 60% of your adjusted gross income (AGI). AGI includes all taxable income items and selected deductions such as the ones for deductible IRA contributions and college loan interest expense. Contributions that exceed the applicable percent-of-AGI limit can be carried over for up to five years and hopefully deducted in those future years.
The AGI limitation rules are quite complicated, but they normally only affect large contributors. You should already know about these rules if you’re in that category. If not, please take my advice and consult a tax pro before committing to any big charitable gifts based on the expectation of reaping hefty tax savings. You might also want to peruse IRS Publication 526 (available on the IRS website at www.irs.gov) for full details on how the AGI limitation rules work.
This story was updated on March 5, 2019.
