Thanks to the charitable contributions deduction, businesses and individuals can lower their taxable income by making gifts of money or property to eligible charities. There are annual deduction caps that change based on the nature of the contribution and your filing status.

The Tax Benefits of Donating to Charity

Generally, taxpayers who itemize their deductions can write off charitable contributions from an approved organization. The maximum allowable deduction for cash contributions between 2018 and 2025 is 60% of the taxpayer's adjusted gross income (AGI).

The Consolidated Appropriations Act increased the AGI threshold from 60% to 100% for tax years beginning in 2020 and 2021. Donations of other forms of property and organizations are subject to limits of 50%, 30%, or 20% of adjusted gross income.

Gifts of appreciated stock or other capital gains property, for instance, can't exceed 30% of your adjusted gross income. 3 In 2020, taxpayers who do not itemize their deductions but instead take the standard deduction will be eligible to deduct up to $300 in charitable contributions under the CARES Act.

This deduction was made permanent through 2021 by the Consolidated Appropriations Act. In 2021, a joint tax return-filing married couple can deduct up to $600 in charitable contributions even if they don't itemize. 2

Beneficiary Organizations

If you want to take an IRS tax deduction for your good deeds, your charity of choice must meet specific criteria. Some examples of tax-exempt organizations that the IRS recognizes are:

• An American trust, community chest, or foundation that operates only for scientific, religious, philanthropic, or literary objectives.
• A group in the United States working to end animal and child abuse
• A temple of worship, be it Jewish, Christian, Muslim, or another faith
• A fire department staffed entirely by unpaid volunteers
• A group for military veterans
• A civil defense group formed under state or federal law, including any out-of-pocket costs incurred by civil defense volunteers concerning their volunteer work.
• A domestic fraternal society organized along lodge lines; donations are tax-deductible solely to the extent they are put toward charity or community outreach activities.

How Much Of Your Donation Is Tax Deductible?

Nonprofits and charities often offer donors perks or discounts as part of their fundraising efforts. This might be anything from branded products to event tickets to free museum admission for a whole year. The donor can deduct just the excess contribution above the value of the benefit received.

In other words, an expense cannot be removed if the cost of a ticket to a charity baseball game is the same as that of a regular game ticket. The extra money spent on tickets might be considered a gift to the cause of the proceeds that went to the organization.

Non-Money Contributions

Donations of any form are deductible, not just monetary ones. The total market value of any goods given to a charity can be claimed as a tax deduction. Donations of valuable assets, such as artwork or investments, may be subject to stricter regulations. Donations of non-monetary items, such as artwork, that exceed $5,000 in value often need an independent assessment.

Volunteering for a good cause also lets you write off some of your costs. The IRS defines "unreimbursed" business costs as those "directly related to the services rendered, that you incurred solely as a result of rendering such services, and that are not ordinary and necessary items of a personal, living, or family nature." 7

Limits on Charity Donations

You can only deduct cash donations up to 60% of your adjusted gross income. Gifts of property other than cash are subject to caps of 50%, 30%, or 20% of adjusted gross income. Donations of capital gains property, such as stock that has increased in value, are limited to 30% of adjusted gross income.

How To Deduct Charitable Contributions from Your Taxes

Please keep track of all your charitable gifts if you need to submit a tax deduction. You must fill this out if your gift is $250 or more. Donations of less than $250 require you to preserve canceled checks or other documents for the IRS's audit purposes. You don't need a fancy receipt to prove your donation was made; any correspondence from the charity should be sufficient.5

The Conclusion

Contributions in cash are tax deductible up to 60% of the donor's adjusted gross income. This requires them to file their taxes using Schedule A and itemize their deductions. There may be lower limits on the amount of some non-cash tax-deductible donations. Before deducting any charitable contributions, research the requirements and keep thorough records.