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Get the Charitable Contribution Tax Deduction in 3 Steps

Donate, document and don't forget the little stuff.
Nov. 25, 2017
Income Taxes, Personal Finance, Personal Taxes, Taxes
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Donating to charity can give you more than just the warm fuzzies. It can also mean hefty savings when you file your taxes.

If you itemize deductions on your tax return, you may be able to subtract the value of your charitable gifts — whether they’re in cash or property, such as clothes or a car — from your taxable income. Your deductions must meet certain guidelines, however, or you won’t get the extra cash to accompany your good deed. Here’s how to get the charitable contribution tax deduction to make your tax year a little sweeter.

1. Donate to a qualifying organization

Your donation will only qualify for a tax deduction if it’s given to a tax-exempt organization, as defined by section 501(c)(3) of the Internal Revenue Code. An organization can be nonprofit without 501(c)(3) status, which can make it tricky to ensure your charity of choice counts.

To determine if your favorite organization meets the test, make sure it provides services for eligible exempt purposes. Examples of qualified institutions include religious organizations, the Red Cross, nonprofit educational agencies, museums, volunteer fire companies and organizations that maintain public parks. You can verify an organization’s status with the IRS Exempt Organizations Select Check tool.

Before you donate, ask the charity how much of your contribution will be tax-deductible. In general, you can deduct up to 50% of your adjusted gross income in the form of charitable donations, but you may be limited to 20% or 30% depending on the type of contribution you make and the organization you donate to (contributions to certain private foundations come with a lower limit, for instance).

This limit applies to all charitable donations you make throughout the year, no matter how many organizations you donate to. But contributions that exceed the income limit can often be deducted on your tax returns for the next five years — or until they’re gone — through a process called a carryover.

2. Document your contributions

Keep track of your donations, no matter the amount. If you made a monetary contribution, qualifying documentation includes a bank statement, a credit card statement and a receipt from the charity (including date, amount and name of the organization) or a cancelled check. If you made a contribution as an automatic deduction from your paycheck through your employer, keep copies of your W-2 or pay stubs showing the amount and date of your donation.

You’ll need additional documentation in these circumstances:

Cash or property donations worth more than $250: The IRS requires you to get a written letter of acknowledgment from the charity. It must include the amount of cash you donated, whether you received anything from the charity in exchange for your donation, and an estimate of the value of those goods and services. You must receive the letter of acknowledgement by the date you file your taxes (usually April 15) for the year you made the contribution.

If you deduct at least $500 worth of non-cash donations: Fill out Form 8283 if you’ll deduct at least $500 in donated items from your income. Additionally, you must attach an appraisal of your items to the form if they’re worth more than $5,000 total.

3. Don’t miss out on lesser-known charitable deductions

IRS rules don’t let you deduct the value of your time or service, but you’re able to deduct expenses related to volunteering for a qualified organization. These expenses must be directly and solely connected with the volunteer work you provided; not previously reimbursed; and not considered personal, living, or family expenses.

Your charitable contribution tax deduction can include mileage you drive to charitable events and volunteer opportunities, or mileage you used to bring items to a donation site. You can either deduct your actual expenses using receipts for gas mileage or you can take the standard mileage deduction. For tax year 2018, it’s 14 cents per mile when you use a car in service of a charitable organization. Keep your receipts throughout the year if you plan to deduct your actual expenses.

Updated Nov. 25, 2017