How Much in Charitable Deductions Can I Claim Before I'm Red-Flagged?

Donating to a charity helps you in a couple of ways. You’re supporting a cause you feel strongly about. You also get a tax deduction, which may reduce the amount of income tax you must pay to the U.S. Treasury. But you’re more likely to face an audit, because charitable deductions are one of the red flags that can trigger an audit.

What is the Average Tax Deduction for Charity?

If you claim deductions for around the average tax contribution for your income category you are not likely to be flagged by the Internal Revenue Service. The overall average tax contribution for charity is around 3 percent. To break it down, if your adjusted gross income is in the $75,000-to-$100,000 per year income category, deductions were about 3.8 percent of average charitable donations by income in 2017, or $3,356.

For those whose AGI is $100,000-to-$200,000, deductions were around 3 percent of average charitable contributions by income in 2017, or $4,130. Interestingly, people in the $50,000-to-$75,000 income bracket deducted a bit more percentage-wise, around 4.8 percent of their income, or $2,970, while people in the $500,000-to-$1 million income bracket deducted for an average of 2.8 percent of their income, or $18,615.

So if you donate a lot more than the typical donor in your income bracket, the IRS may take notice. Still, if you have the proper documentation, most tax experts recommend you take the deduction. As long as you’re confident your tax return can withstand an audit, you shouldn’t worry about how much you donate. If your goal is to avoid an audit, however, you might want to stick to the average tax deduction for charity. But, if you’ve made one or two large donations, the IRS allows you to spread that deduction out over six years, which may keep your tax return from being audited.

Exceptions That May Draw Notice

What can draw attention to the IRS and increase your chances that your tax return will be audited are unusual donations, even if your charitable deductions total the average giving amount. The IRS encourages people to donate clothes, food and even old cars to charity. But don’t overestimate the value of these items. The IRS prefers that these typically be valued at 1-to-30-percent of the original purchase price for deduction purposes. Anything above that is likely to raise a red flag. If you are claiming less than $250 in donated items, it shouldn’t be a problem, but if you are claiming more than $250 in items, you should save your receipts. Goodwill and similar charities, as a rule, give receipts for donated clothing and household items. If you’ve donated something you claim is worth over $5,000, say a classic car or a piece of valuable antique furniture, you are required to submit an appraisal with your tax return. You are also more likely to get audited by the IRS.

2018 Tax Law Changes

Changes to the tax law in 2018 may mean fewer of us will deduct charitable contributions for our income taxes going forward. The Tax Policy Center estimates that the number of households claiming charitable deductions to nonprofits will drop from 37 million for the 2017 tax year to 16 million for 2018. That’s mainly because, for 2018 taxes, the standard deduction increases to $12,000 for singles and $24,000 for couples. That's double what it was in 2017. Fewer taxpayers will itemize deductions, instead opting for the now more generous standard deduction. The share of middle-income households claiming the charitable deduction will drop from 17 percent to 5.5 percent. For households with annual taxable incomes of $86,000-to-$150,000, the Tax Policy Center estimates the percentage of taxpayers itemizing charitable gifts will drop from 39 percent to 15 percent.

If you still plan to itemize for your 2018 taxes, you can now donate up to 60 percent of your adjusted gross income. That amount was capped at 50 percent for 2017 taxes. The deduction for a charitable donation of stock remains capped at 30 percent of your income.

If You’re Filing 2017 Taxes

If you are working on your 2017 taxes, you are more likely to be itemizing deductions. The standard deduction for 2017 is $6,350 for singles and $12,700 for couples. For those who like to spread deductions out over six years, as the IRS allows, you may want to reverse course and instead take your deductions all at once. Just make sure you have your receipts in order in case your return is flagged. You will also not be allowed to deduct more than 50 percent of your total adjusted income for charitable donations. To find the latest IRS forms and instructions for charitable donations, go here.

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