What Qualifies as a Tax-Deductible Charitable Contribution?
Charitable contributions can be an excellent way to reduce your tax liability, but it’s important that you ensure the contributions you’re making are actually tax deductible. Many people believe that contributions to any charitable cause can be deducted on their tax returns, but this is not the case. Even if you’re giving to a good cause, it doesn’t many it’s a tax-deductible contribution. Keep reading to learn more about what types of contributions usually do or don’t qualify. If you’re unsure if the contributions you’re making will be deductible on this year’s tax return, please reach out to one of our CPAs.
What Doesn’t Qualify?
When it comes to deducting charitable contributions, there are a few types of donations we often seen listed that aren’t actually deductible. Here are some of the most common kinds of donations that we see individuals trying to deduct, but which are not actually tax-deductible contributions:
- Donations to individuals (e.g., donations to GoFundMe pages, contributions to assist individuals with medical bills, etc.)
- Paying for another person’s tuition (in whole or in part)
- Approximate value of time or services given, regardless of the entity or organization receiving your voluntary services
- Approximate value of blood given at a blood bank or blood drive
- Any donation given to groups that operate for personal profit
- Dues or fees for HOAs, country clubs, lodges, etc.
If you’ve been keeping track of these kinds of donations, hoping to deduct them on your tax return this year, these contributions will unfortunately not be tax deductible. For a better understanding of why the above types of contributions don’t qualify, keep reading, or reach out to one of our tax preparers.
What Does Qualify?
In order for your donations to be deductible on your tax return, they must be given to a qualified institution. Examples of qualifying institutions include the following:
- Religious organizations (churches, temples, mosques, synagogues, etc.)
- Local, state, and federal governments, if given for public purposes (e.g., maintaining a public park)
- Nonprofit hospitals
- Nonprofit schools
- Certified, nonprofit charities (e.g., United Way, Goodwill Industries, The Salvation Army, etc.)
- War veterans’ groups
Because donations to individuals and payments to HOAs would not fall under any of these groups, they cannot be deducted. Additionally, in order for a contribution to be deductible, it must have inherent monetary value. This would include donations of cash, property, stocks, and so on; as mentioned above, it cannot include value of time, services, or donated blood.
However, if you have incurred costs while volunteering your time for a qualifying organization, those costs can be deducted on your tax return. This would include the cost of purchased supplies, as well as vehicle expenses when traveling for volunteer work, so long as those expenses are not reimbursed by the organization.
Claiming Qualifying Deductions
Now that you better understand what does and does not qualify as a charitable contribution, how do you go about claiming those deductions? In most cases, a receipt documenting your contribution is sufficient; you can usually get these from the organization at the time of your donation, whether it’s a cash or property donation. If donating items, you’ll need to document the approximate value of those items on the receipt. We also recommend keeping a spreadsheet of your charitable contributions throughout the year to make filing your return easier.
When you file your return, you’ll have to itemize your deductions in order to claim charitable contributions. So, unless your total deductions are quite high, you may not even need to worry about tracking your charitable contributions throughout the year. If you do decide to itemize, you’ll use Schedule A with Form 1040 to deduct these contributions. And though receipts are not necessary with an initial tax filing, the IRS may respond requesting proof of your contributions in some cases; if this happens, you’ll need to have those receipts on hand if you hope to keep your deductions on your return.
If you’re donating real estate or stocks, or deducting a significant number of miles driven for charity, we strongly recommend contacting one of our tax preparers. These issues can get complicated, and the IRS guidelines for deducting charitable contributions are quite strict. So, if you’re unsure in any way of how to deduct your qualifying donations, working with a CPA is your best option.
If you’re not sure whether or not your charitable donations qualify for deductions, you need assistance deciding whether to itemize your deductions or not, or you simply want an expert handling your tax return, reach out to our CPA firm today to schedule an appointment with one of our professional tax preparers.