Charitable Donations and How They Affect Taxes
By Becca Stewart
‘Tis the season for charitable giving! Which also means tax season is right around the corner. And with that in mind, we’re here to help you make the most of your charitable donations and claim those donations on your taxes.
Tax Benefits of Charitable Giving
Donating to nonprofit organizations is a win-win proposition. Not only can you help improve the world by supporting your favorite charity, you can reduce your own tax burden in the process.
American taxpayers can deduct charitable giving from their total taxable income, reducing the total owed at tax time. There are very specific rules governing charitable donations and tax deductions. However, those who take advantage of these tax breaks can reduce the amount they owe at tax time (or increase their refund) – all while helping others in the process.
Can I Deduct Charitable Donations?
First thing’s first: You can typically only claim charitable donations if you are itemizing your taxes. Most Americans will only itemize their taxes if the anticipated total of all itemizations is more than the standard deduction. Typically, the standard deduction will increase year over year. Below are the standard deductions for tax years 2021 and 2022.
2021-2022 Standardized Deductions
| Filing Status | 2021 Tax Year Standard Deductions | 2022 Tax Year Standard Deduction |
|---|---|---|
| Single | $12,550 | $12,950 |
| Married, filing jointly | $25,100 | $25,900 |
| Married, filing separately | $12,550 | $12,950 |
| Head of household | $18,800 | $19,400 |
Charitable donations are part of your “itemized deductions.” Other potential deductions include payments for healthcare, education, property taxes, interest on your mortgage, and hundreds of additional expenses. If the total of these expenses is more than the amount in the table above, you may want to itemize your taxes and claim all possible deductions.
One important note for 2021 — because of the economic strain caused by the COVID-19 pandemic, even taxpayers who do not itemize may still deduct a portion of their charitable giving. Single filers can deduct up to $300, and those filing jointly may deduct up to $600, even when taking the standard deduction.
How Do I Deduct Charitable Giving?
First, you’ll need to ensure the organization receiving your gift is a 501(c)(3) charity. Only donations made to these organizations qualify for tax deductions. Contributions to political organizations, political campaigns, and organizations that seek to influence legislation typically cannot be deducted. Any organization that exists for private interests is also excluded.
To claim eligible giving on your taxes, you need detailed records proving your contributions. Nonprofit organizations should provide you with documentation outlining your annual contributions. If you donated to a charity through GreatNonprofits, we email you a receipt for your contributions or you can find it by logging in to your account.
When you donate physical items or goods to a charity, be sure to ask for a receipt detailing the market value of those donations. If you donate goods worth over $500, you might need to have those items appraised and present the appraisal when you file your taxes.
What Can I Deduct?
While you can probably deduct most of your charitable giving, there are some exceptions. First, you can usually only deduct 60% of your adjusted gross income. However, the amount you can deduct will vary depending on the type of organization you give to.
If you make a cash donation to a qualifying charity and do not receive any goods or services in return, 100% of that donation is tax-deductible. However, if you receive something in return (a t-shirt, for instance, or another gift), you may only deduct your donation amount minus the gift’s worth.
You can also claim deductions when you donate items to charity, like clothing, food, or used goods. In these instances, the nonprofit organization will provide you with a receipt showing the items’ fair market value. This is the amount you can deduct on your taxes.
Donations That Are NOT Tax-Deductible
Currently, the IRS does not allow you to deduct the value of your time or service. However, you can deduct expenses related to volunteering. Such expenses could include mileage to drive to and from an event or supplies purchased to help with a project.
It’s also important to verify that the organization is a qualified 501(c)(3) charity. Political campaigns, political organizations, and other groups that influence lawmakers are not qualified charities. While your donations are still imperative to their work, those donations cannot be deducted come tax time.
How Does My Income Impact Deductions?
Your overall tax burden is calculated based on your total income. In the United States, tax brackets are progressively tiered, so you only pay the increased rate on income over a specific threshold. For instance, if you are married and filing jointly, and you make $175,000 annually, your tax burden would be as follows:
- The first $19,000 is taxed at 10%
- The next $61,150 is taxed at 12%
- All income from $81,051 to $172,750 is taxed at 24%
- The remaining $2,250 would be in the 32% tax bracket.
| Rate | Unmarried, With Taxable Income Over | Married, Filing Jointly, Taxable Income Over | Head of Household, Taxable Income Over |
|---|---|---|---|
| 10% | $0 | $0 | $0 |
| 12% | $9,950 | $19,900 | $14,200 |
| 22% | $40,525 | $81,050 | $54,200 |
| 24% | $86,375 | $172,750 | $86,350 |
| 32% | $164,925 | $329,850 | $164,900 |
| 35% | $209,425 | $418,850 | $209,400 |
| 37% | $523,600 | $628,300 | $523,600 |
In short, higher earners usually face higher tax burdens. Those in these higher tax brackets will likely benefit from itemizing taxes. Since charitable contributions reduce the overall tax burden, higher earners can significantly reduce the amount of taxes they owe simply by giving generously to causes they care about most.
The CARES Act and Charitable Giving for 2021
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in 2020 included charitable giving incentives designed to alleviate the economic strain caused by the pandemic. Donors who take the standard deduction can still claim up to $600 of eligible donations. Those itemizing their deductions can deduct up to 100% of your adjusted gross income.
The CARES Act also allows for additional contributions from corporations. Individuals may elect to donate more significant portions of their investments to qualified charities as part of this effort.
These temporary charitable giving rules currently apply only to tax years 2020 and 2021. Ask your tax professional for more information.
Changes for Tax Year 2022
Looking ahead, keep in mind that the IRS is changing some requirements and deduction limits for 2022. That is, when you file your 2023 taxes, the information in this article might be invalid. For instance, the standardized deduction amounts will increase for tax year 2022, as seen in the chart above.
Check with the IRS or your local tax preparer for more information.
Finding a 501(c)(3) Public Charity
Are you still looking for nonprofits to partner with for the 2021 tax year? Giving to charities not only reduces your overall tax burden but also improves communities around the world. There are nonprofit agencies dedicated to just about every cause in the world. Find a cause that matters to you, then use the GreatNonprofits search tools to find an organization to support.
When you partner with a verified 501(c)(3) organization, you’re helping to make the world a better place while also getting tax benefits in the process. To see if a charity is eligible for IRS tax deductions, check out the IRS Tax Exempt Organization Search Tool. Remember, contributions made through December 31, 2021, can be deducted from your 2022 taxes.
The above does not represent official tax advice. Consult the IRS or your tax professional for more detailed information about charitable deductions.
Loading ...