Charitable Contributions Deduction: What It Is and How It Works

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What Is a Charitable Contributions Deduction?

The charitable contributions deduction reduces taxable income by allowing individual taxpayers and businesses to deduct contributions of cash and property to qualified charitable organizations. The amount deducted in a year is subject to limits that depend on the type of donation and how individuals file their taxes.

Key Takeaways

• The charitable contributions deduction allows taxpayers to deduct donations of cash and property given to qualified charitable organizations.
• There are Internal Revenue Service (IRS) limits for the total amount of charitable contribution deductions.
• Cash donations for 2022 and later are generally limited to 60% of the taxpayer’s adjusted gross income (AGI).
• To deduct a charitable contribution, taxpayers must itemize deductions on Schedule A of Form 1040.
  

How the Charitable Contributions Deduction Works

Donations to a qualified charity are deductible for taxpayers who itemize their deductions using Schedule A of IRS Form 1040. Cash donations for 2022 and later are limited to 60% of the taxpayer’s adjusted gross income (AGI).

Qualified organizations include nonprofit entities whose purpose is religious, charitable, educational, scientific, or literary. Groups that work to prevent cruelty to children or animals also qualify.

For individuals who contribute property to a qualified organization, the charitable contribution is calculated as the fair market value at the time of the contribution. Some contributions can be limited to 50%, 30%, or 20% of AGI, depending on the type of property and organization receiving the donation. For example, capital gains and property donations, such as appreciated stock, are limited to 30% of AGI.

As of 2023, the deduction for food inventory is 15% for those business owners who donate from their trade to help those in need, and the food supports the receiving organization’s mission. The donation must also meet the requirements of the Federal Food, Drug, and Cosmetic Act.

Non-deductible contributions include donations to sports clubs, civic leagues, or political candidates. Individuals also cannot deduct the value of their time when donating blood or volunteering.

Examples of Qualified Organizations

To deduct charitable contributions, the recipient charity must be a qualified organization according to the IRS and include:

• A trust, community chest, or foundation created in the United States that is operated exclusively for scientific, religious, charitable, or literary purposes
• A U.S. organization developed to prevent cruelty to animals or children
• A synagogue, mosque, church, or other religious organization
• A volunteer, not-for-profit fire company
• A war veterans organization
• A civil defense organization created under local, state, or federal law, including any unreimbursed expenses of civil defense volunteers that are directly connected to their volunteer services
• A domestic fraternal society that functions under a lodge system, but the donation is only deductible if it is used for community outreach or other charitable purposes
• A nonprofit cemetery, but only if the funds are used to care for the cemetery as a whole vs. a particular tombstone, mausoleum, crypt, or other marker

To determine whether an organization qualifies to receive deductible contributions, the IRS Tax Exempt Organization Search tool can help verify its tax-exempt status and eligibility.

Record Keeping

Individuals can deduct contributions only in the year in which they donate. This applies whether the taxpayers use the cash or accrual method of accounting. Those who claim deductions for your charitable contributions need to record each donation.

The records must prove the amount and denote whether the donation was cash, non-cash, or out-of-pocket expenses. The receiving organization must provide a written statement to the donor for contributions that total more than $75 and define if the donation was partly a contribution and partly for goods or services.

What Is the Charitable Donations Deduction Limit?

The limit for cash donations was once 100% of gross adjusted income, but was a temporary, COVID-related policy in 2021. For 2022 and later, the limits are commonly 60% of the taxpayer’s adjusted gross income (AGI).

Can You Take Charitable Donation Deductions without Itemizing?

To deduct a charitable contribution, taxpayers must itemize deductions on Schedule A of Form 1040.

What Is a Qualified Charitable Organization?

The IRS recognizes donations to organizations that qualify as 501(c)(3) organizations as tax deductible for donors. Three common categories are charitable organizations, churches and religious organizations, and private foundations.

The Bottom Line

The charitable contributions deduction allows taxpayers to deduct donations of cash and property given to qualified charitable organizations. When filing, individuals or businesses must itemize deductions on Schedule A of IRS Form 1040.

Limits apply to charitable contribution deductions based on IRS limits. For 2022 and later, limits are 60% of the taxpayer’s adjusted gross income (AGI), although some exceptions apply.

1. Internal Revenue Service. “Publication 526 (2023), Charitable Contributions.”
2. Internal Revenue Service. “Publication 526: Charitable Contributions,” Pages 3 and 12.
3. Internal Revenue Service. “Charitable Contribution Deductions.”
4. Internal Revenue Service. “Publication 526: Charitable Contributions,” Page 14.

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