When it comes down to it, there are three things you can do with money: Spend it, save it, and give it away. All three are an important part of building great money habits, but we believe the most fun you’ll ever have with money is when you give!
Whether that’s tithing to your local church, giving to a charity you’re super passionate about, or even just picking up the tab for the person behind you in the drive-thru, something special happens in your soul when you make giving a regular part of your life.
And if you’re one of those cheerful givers who loves to give, then you might be in luck when Tax Day comes around. Why? Your charitable donations can become tax deductions that help you lower your taxable income, which lowers your tax bill!
But before you go off and donate even more money for the tax savings, there are some things you need to know first.
- Yup, charitable donations made to qualified charitable organizations and nonprofits are tax-deductible.
- You can deduct up to 60% of your adjusted gross income (AGI) for cash contributions made to nonprofits.
- You need to itemize your deduction if you want to claim charitable donations on your tax return.
What Is a Charitable Donation?
A charitable donation is a gift of cash or property you make to a nonprofit organization to help it accomplish its mission and goals. And those donations can be deducted on your federal tax return if you decide to itemize your deductions (more on that below).
Most of your charitable donations will likely be made with cash. But you can also give some types of property or assets to the charity of your choice. Those donations are called noncash contributions, and that list includes the following:
- Household items
- Real estate property
- Art pieces and collectibles
- Jewelry and gems
- Stocks and bonds
Are Charitable Donations Tax-Deductible?
The answer is yes, cash and noncash charitable contributions are tax-deductible. The more you give, the more you can deduct from your taxes! Well . . . up to a certain point.
You can deduct any amount of charitable giving up to 60% of your adjusted gross income (AGI) for cash contributions made to qualified charities (more on that in a minute).
For noncash contributions, it gets a little trickier—the limit is usually 50%, 30% or 20% of your AGI, depending on the type of property or items you give and the type of organization you give it to.1
How Do Tax Deductions for Charitable Donations Work?
Alright, now let’s take a closer look at how tax-deductible charitable donations work, including what organizations you can donate to, how to claim those deductions, and how to keep a record of your donations in case the IRS comes around for an audit.
1. You must donate money to a qualified organization.
If you want your charitable donations to qualify for a tax deduction, you need to donate to organizations that are given tax-exempt status by the IRS, sometimes known as 501(c)(3) organizations.
In other words, you can’t just send some money to your cousin who says he’s doing “humanitarian work in the Bahamas” and claim that as a tax deduction (gifts to family and friends are not tax-deductible).2
Here are some common types of organizations that typically qualify for tax-deductible donations:
- Charitable organizations
- Educational institutions
- Religious organizations
- Medical and health organizations
- Arts and cultural organizations
- Environmental and conservation groups
- Human services organizations
- Animal welfare organizations
- Community foundations
If you’re not sure whether an organization is eligible for tax-deductible donations, you can verify an organization’s status through the IRS.3
2. You must itemize your deductions if you want to write off charitable donations.
When you sit down to file your taxes, you have two options: take the standard deduction, or itemize deductions on your tax return. You can’t do both.
Don’t settle for tax software with hidden fees or agendas. Use one that’s on your side—Ramsey SmartTax.
While the standard deduction is like an “easy button” for the tax-filing process (and makes sense for most tax filers), itemizing allows taxpayers to include charitable donations along with other deductible expenses like mortgage interest and medical expenses.
That’s right: If you want to write off your donations to charity, you have to itemize your deductions. If you take the standard deduction, then you won’t be able to claim your tax-deductible donations to charity.
The choice is yours, but it only makes sense to itemize your deductions if your deductible expenses add up to more than the amount of the standard deduction.
For example, if you’re married filing jointly and your tax-deductible expenses (which also include things like student loan interest and home office expenses) for the year were $35,000, then it would make sense to itemize since the standard deduction for anyone married filing jointly is $27,700 for the 2023 tax year.
Married Filing Jointly
Married Filing Separately
Head of Household
It might be a good idea to connect with a RamseyTrusted tax pro who can help you figure out which option is best for you and what steps you’ll need to take to itemize your charitable donations.
3. Make sure you document and keep records of your charitable donations.
Having the proper documentation when it comes to claiming tax deductions for charitable donations isn’t optional—it is necessary. You’ll need those documents to back up your claims when you file your taxes and if the IRS ever decides to swoop in with a S.W.A.T. team and audit papers (okay, maybe not an actual S.W.A.T team—but auditors can be just as scary).
For starters, get a written acknowledgment from the charity for donations above $250 and keep that written acknowledgment in your records (that includes cash and noncash contributions).
The acknowledgment must say whether the organization gave you anything in exchange for the gift and, if so, needs to give a description and a good faith estimate of the value of those goods or services. You’ll only be able to deduct the amount that’s above the value of the benefits you received from the charity.6
For smaller amounts, bank statements and receipts from the organizations you donated to can serve as evidence.
How Do I Claim Charitable Donations on My Tax Return?
When you’re reporting charitable contributions on your tax return, it’s important to make sure you report the value of whatever you donate accurately. Cash donations are pretty straightforward—if you donate $100 to your favorite charity, you can deduct that $100 from your taxable income. Simple. When you’re ready to file, you’ll report the amount of all your cash gifts on your Schedule A (Form 1040).7
But what about noncash contributions? Those are a little trickier! In some cases, you might need to do an appraisal to determine the true value of donated items and assets, especially if they’re worth hundreds or thousands of dollars. You’ll need to fill out Form 8283 to report information about noncash charitable contributions when the amount of those gifts is more than $500.8
- Make sure you have everything you need to file your taxes with our Tax Prep Checklist, which will help you gather all the necessary documents and choose the right deductions.
- If you’re a do-it-yourself kind of guy or gal, then you can file your taxes with Ramsey SmartTax! You’ll get access to all the federal forms (plus state forms, if you need those) and deductions you need without any upcharges or hidden fees.
- Need help with your taxes? Then get in touch with a RamseyTrusted tax advisor and let a top-notch CPA or enrolled agent take the stress out of tax season.