Charitable giving is encouraged by the IRS, but there are limitations to what you can deduct from your taxes for this act of generosity.
Tax law encourages individuals and businesses to make donations to charity. Most contributions of cash and property are deductible, but there are limits to consider. Here are some points to keep in mind:
- Contributions are deductible only by those who itemize deductions.
- For those eligible to deduct contributions, there are limits based on adjusted gross income (AGI). Cash contributions are deductible up to 50% of AGI. Contributions of long-term capital gain property are deductible up to 30% (with a special election that can increase the limit to 50%). Contributions in excess of these amounts may be carried forward (for up to five years) and deducted in a future year.
- Long-term capital gain property is deductible at its fair market value. By making a donation of such property, an individual benefits from the appreciation in value without having to pay any capital gains tax.
- Corporations: C corporations can deduct contributions up to 10% of their taxable income. They can also claim enhanced deductions for donations of inventory donated to public charities, scientific property used for research donated to higher education institutions, and computer equipment donated to grades K-12.
- Other businesses: Contribution amounts pass through to owners and are deductible to the extent of the individual's limits explained above.
All taxpayers must satisfy substantiation requirements
For gifts of $250 or more, a deduction is allowed only if the donor receives a statement from the charity listing the contribution and stating whether any goods or services were received in exchange.
For property donations valued at more than $500, Form 8283 must be filed and certain appraisal requirements must be met.
For more information about charitable contribution deductions, see IRS Publication 526, Charitable Contributions and IRS Publication 561, Determining the Value of Donated Property.
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