You want to make donations to charity to help others, but those donations also can lower your tax bill. That’s a good thing for most of us. However, you want to make sure you follow all the rules set by the Internal Revenue Service correctly, so you avoid IRS scrutiny. Also, you must itemize your taxes to deduct for charitable giving.
Avoiding IRS Red Flags for Charitable Donations
The IRS knows how much the average taxpayer in your income range donates, and if you want to avoid IRS red flags for charitable donations, it’s a good idea to stay within that charitable donations limit range, or the IRS may want to take a closer look at your tax return. Say your adjusted gross income is $100,000. The average donation for that income level is about $3,620, or around 3 percent. So if you donate three times that much, make sure you keep any charitable donation receipts, because the IRS may want to check your return. If you are within that 3-percent range, you most likely can go ahead and claim charitable deductions without a receipt. Still, keeping receipts always makes sense in case the IRS flags your return for another reason. You are legally allowed to claim charitable deductions for up to 60 percent of your adjusted gross income, but again, if you go much above that 3 percent rate, the IRS will likely audit your return. You have up to six years to claim charitable donations, so you can put off the deduction to a year when it works more to your advantage.
If you’re claiming noncash donations, you are better off claiming less than $500 to avoid the IRS charitable donations limit-without-receipt rule. If you are claiming over $500, the IRS wants you to retain a tax receipt for the donation of each item. You’ll also need to file IRS Form 8283, Noncash Charitable Contributions, with your tax return. These noncash donations are usually clothing, electronics, furniture, art, jewelry or antiques. You can donate furniture or clothing to Goodwill, or similar organizations, and you’ll get a receipt for the estimated value. If any property you’ve donated is valued at more than $5,000, however, you’ll have to get an appraised value and include that with your IRS Form 8283.
If you tithe to a church, you are likely giving 10 percent of your income. That’s enough to make the IRS take notice. Just make sure you keep the right paperwork, and the audit shouldn’t be a problem.
Notable IRS Exemptions
You do not have to file additional forms if you donate by cash, credit card or check, other than itemizing your deductions on IRS Schedule A. You do want to make sure that your monetary donations are to legitimate organizations. The IRS recognizes nonprofits such as religious organizations; federal, state or local government; veterans organizations and other nonprofits.
If you benefit from the donation, you will need to subtract that total from your deduction. For example, if you buy tickets to a charity ball, and part of the ticket price covers food and drink, you must subtract that cost from your deduction. Most charities will give you this information when you buy the tickets. Another example would be if you donate to a public radio station and get a mug in return for your gift – you would deduct the cost of the mug.
If you decide to volunteer your time, you cannot deduct for the value of your labor. For example, if you are an accountant and donate accounting for a nonprofit, that time is not deductible. What is deductible are expenses for things like parking fees, tolls and other costs related to your service. But save your receipts.
While deductions of typical charitable gifts are capped at 60 percent of your income, gifts of stock are deductible up to 30 percent.
What to Expect When You File in 2018
Up until 2017, you were limited to deducting no more than 50 percent of your adjusted gross income for charitable gifts, up to a certain limit. Now you can deduct up to 60 percent, up to a certain limit. The six-year rule to claim charitable deductions remains.
You may be less likely to claim itemized deductions for income earned in 2018. Changes to the tax law increased the standard deduction to $12,000 for single filers and $24,000 for couples filing jointly. So you may be less likely to deduct charitable contributions unless your deductions put you over that standard deduction.
If You Still Need to File for 2017
If you haven’t finished your 2017 taxes, your standard deduction remains at $6,350 for single filers and $12,700 for couples filing jointly. Therefore, you are more likely to want to deduct any charitable contributions you made in 2017. Contributions made for relief efforts for Hurricane or Tropical Storm Harvey, Hurricane Maria, Hurricane Irma or California wildfires are not subject to the 50 percent limit on itemized deductions.
- CNN Money: Ten Tax Audit Red Flags
- Nolo: How To Value Noncash Charitable Contributions
- Clark Nuber: Cash and Noncash Donations: The Ins and Outs of Charitable
- Chicago Tribune: How the Tax Law Changes Charitable Contributions
- Forbes: Thirteen Tips for Making Your Charitable Donation Deductible in 2017
- 20Something Finance: The IRS Donation Limit: What is the Maximum You Can Deduct?
Karen Gardner is a former feature editor and writer and is now a freelance writer. She looks forward to doing her family's taxes each year, and likes to write about home finances and money subjects for the rest of us.