Monday, February 10, 2014

Tax Time: Charitable Contributions

I think most people know that charitable contributions can be beneficial come tax time, but I thought I'd throw in a brief refresher course as to the actual details of how that works. As a disclaimer to all of my accountant friends, I know this issue can get very complicated. But for most of us, it's pretty straightforward- and I'm addressing this post to the "most of us" to keep it simple.

A quick note on tax basics-- confused as to what exactly a deduction is? Check this post out before reading on.

What counts as a charitable contribution?
First of all, what is a charitable contribution (at least according to the IRS)?
Money you gave to a struggling friend or relative doesn't count. It has to be a donation to a qualified organization. Most churches qualify, but you can double check their eligibility here. The table below from the IRS is a good overview of what types of things generally qualify as a charitable contribution. Did you know that the value of your time or services is not deductible? And did you know that out-of-pocket expenses when you volunteer for a qualified organization count are deductible? (So keep those receipts if you bought cute journals for your Young Women, but didn't get reimbursed for them! Also, if any of you have a single out-of-pocket expense that was more than $250, you'll need more documentation.) This also includes mileage expense, so keep a log of how far, when, why you drove for a qualified charitable organization (think temple trips for the youth), and you can deduct those at 14 cents per mile.
From Publication 526, Charitable Contributions, Dept. of the Treasury, Internal Revenue Service, Published Nov 12, 2013
I'm trying not to get too detailed here, but I think it is worth pointing out that if you get something significant in exchange for your donation, you have to subtract that value from your donation to find the amount you can deduct. So, for example, if you paid $100 to attend a charity dinner, and the value of the dinner was $20, you can only deduct $80 as a charitable contribution on your tax return.

Can everybody deduct them on their taxes?
Nope. Unfortunately only people who itemize deductions on their tax return can deduct charitable contributions. If you don't have enough deductions to itemize, consider bunching your charitable contributions into one year, rather than spreading them over two, like we talk about here.

You can only deduct up to 50 percent of your adjusted gross income in cash donations in a given year. For non-cash donations, the limitation becomes more strict at 30 percent of your adjusted gross income. We could talk about this more, but I'm not sure it comes up often enough among our readership to merit a thorough discussion on this blog.

Another thing to be aware of (although my guess is this will affect only a small percentage of our blog's readership), is that when your yearly income hits certain levels, the government reduces the amount of itemized deductions you can deduct on your return. For 2013, this occurs when your adjusted gross income hits $250,000 for single filers or $300,000 for married filers.

How do I decide how much things are worth?
For non-cash donations, like to Goodwill, use Goodwill store prices as a guide.

How do you deduct them?
Since this isn't a homework assignment for Individual Taxation 101, you'll probably be using software to complete your taxes. It will provide a place for you to enter in your charitable contributions made in 2013. Then it will do the rest of the work for you. When reviewing your return, you should check to make sure that the following forms are included and accurately reflect the amount of your contributions.

  • If you are deducting charitable contributions: Schedule A
  • If you have non-cash contributions (think Goodwill/Deseret Industries) over $500: Form 8283
  • If you donated a car: Form 1098-C

Do I need to keep records of my deductions?
For cash (and I mean cash, check, credit card, etc.), you should always keep proof of payment or some kind of record of your charitable deductions in case of audit. Make sure to include the name, date, and amount of donation (cancelled checks and credit card statements work well). I would hang on to them for six years. If you have a single donation (cash or non-cash) over $250, you need a written acknowledgement from the organziation of the donation that describes what you donated, estimates its value, and states you didn't receive anything in exchange. Check out page 19 of Publication 526 below for more details on records requirement. You should receive this before you file your taxes (not two years later when you're being audited).

For non-cash donations, the documentation requirement becomes more strict the higher the total dollar amount of non-cash donations for the year.

  • For under $250, keep a receipt of each donation if you can (if you leave it a drop-site where it's impractical to get one, that's okay). I know they usually give you blank ones, but fill it out with the name of the organization, date and location, and a general description of what you're donating. For this amount, it's not so much about being official (you don't have to attach this to your return), it's more that the IRS wants to see that you didn't just reach the end of the year and say, "Yeah, I'm pretty sure that we donated $200 worth of junk." They want to make sure you kept some sort of track of your donations. 
  • For under $500, but more than $250, you need to receive a written acknowledgement of the donation that describes what you donated, estimates its value, and states you didn't receive anything in exchange. You need to get this before you file your tax return.
  • Over $500, let me know in the comments if we should cover this in another post.

Charitable Contributions Publication 526. Internal Revenue Service. November 12, 2013.

 Tell us-- What other tax topics do you want to hear about?


  1. You both do an amazing job on this blog! I just read through all the posts about taxes and it's been really really helpful. Thank you for sharing your valuable knowledge. :)


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