Designated gifts and contributions you make may be tax deductible, depending on how you designate the gift. The IRS allows a deduction for certain earmarked contributions you make, provided your charity benefits a qualified organization. To qualify, your gift must be made to a nonprofit organization with either an educational, religious, literary, scientific, abuse prevention or charitable operation. You can’t deduct any portion of gifts you provide to a political or social fraternization club for any reason, regardless of whether your gift is designated or not.
Gifts to Individuals
If you designate a gift to an individual, you can’t deduct any portion of your contribution. This is true even when you make it through a qualified organization. The IRS does not permit a deduction for gifts that benefit any sole individual for any reason. However, you may make designated gifts to an organization that benefits groups of individuals as long as you do not specify a person you wish to benefit from your gift. For example, if you designate a gift to a food drive for your local homeless shelter, your gift is deductible. Although individuals will benefit from your contribution, you are not designating your gift to a particular person.
Gifts to Organizations
Designated gifts you make to organizations for specific projects or needs of the organization are generally tax deductible. You can make a designated gift to an organization, specifying how your gift should be spent, rather than making a generic contribution to the organization’s efforts. When you specify an organization’s fund or project upon giving your gift, you are telling the organization how to use your gift. This differs from the unrestricted gifts you make, which do not make specifications. In either case, as long as your gift is going to a qualified organization, it is still deductible.
Most contributions you make to qualified organizations are subject to a 50 percent adjusted gross income limitation. This means you can deduct 100 percent of contributions you designate that equal up to 50 percent of your adjusted gross income. If your total annual gifts from all contributions exceed 50 percent of your adjusted gross income, you can carry over the remainder to deduct in future tax years. Your adjusted gross income is found on line 38 of your federal personal income tax return. However, if your designated gift is in the form of capital gains property, such as stocks or bonds, then a portion of your deduction may be limited to 30 percent of your adjusted gross income.
Standard Deduction Limits
If you meet the criteria to deduct your designated gift, the final consideration you must make is the type of deduction you’ll take on your tax return. The IRS allows you to take a standard deduction for your filing status, or itemized deductions. If you take the standard deduction, you won’t be able to deduct your gifts because gifts are deductible only when you itemize. To receive a benefit from itemizing, your total itemized deductions must equal more than your standard deduction for your filing status. Other popular itemized deductions include mortgage interest, property and state income taxes and medical expenses. Standard deduction amounts change each year, so you’ll need a copy of the current year 1040 form to determine if your itemized deductions exceed your standard deduction.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.