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Donation Tax Deductions: Put Money Where Your Heart Is

Zoe Team

Jun 30, 2020

4 min read

A financial advisor reviewing a plan with two clients at a table

Key Takeaways

Donations can provide significant tax deductions if you itemize your tax returns.
Maintain thorough documentation, including receipts and acknowledgments, to substantiate your charitable contributions.
Ensure that your chosen organization is a qualified nonprofit to guarantee that your donation qualifies for tax benefits.

Frequently Asked Questions

Are all donations tax-deductible?

Only donations made to qualified 501(c)(3) organizations are typically eligible for tax deductions on your federal return.

What documents do I need for deductions?

You should keep official receipts, bank statements, and written acknowledgments from the organization for any donation you claim.

Should I always itemize for donations?

You must itemize deductions on your tax return to benefit from charitable contributions; otherwise, the standard deduction may be better.

The last couple of months have taught us there’s no need to travel to far off lands to advocate for and support causes we care about. Between conversations with friends, navigating social network news feeds, consulting trusted media, or even taking a walk around your neighborhood, it’s possible to identify situations where a well-placed donation can make the world a better place to live.

Donation Tax Deduction: The Benefits of Giving

In the US, there are thousands of causes you can get involved with and millions of institutions operating to solve them. You can donate your time as a volunteer, donate your possessions, or donate money. Donating funds is a great option because it provides the organization you are supporting with resources to allocate them where they need it most, while also providing you with a donation tax deduction.

Reflecting Your Values

Collaborating with causes close to your heart or dealing with situations that concern you is a reason to be proud of. You make a monetary effort through which you seek to benefit others. Plus, keep in mind that by making a donation you could qualify for a deduction on your taxes: donations to qualified charitable organizations can be deducted from your income taxes, thus reducing the value of taxable income. That said, note that these donation tax deductions cannot exceed 60% of your adjusted gross income.

Donation Tax Deduction Tip: Keep Track of Your Contributions

Be sure to keep proper documentation of your contributions. If you want to claim a charitable deduction for a donation, you must be able to verify your claim. In the occasion that the IRS audits you, you’ll need one of the following documents to prove the endowment: a written receipt from the organization, or a credit card or bank statement.

Donation Tax Deduction Tip: Focus on Your Goals

If you want to incorporate charitable giving in your financial planning, you should take several aspects into account to make the most of the deduction. It is not advisable to wait until tax filing season to start working on your forms and identify opportunities for deductions. For instance, contributions are only deducted the year they are made: a mailed check to a charity or credit card contribution will be deducted in the year the accounts are affected, even if payment is made the following year. If you identify that you cannot deduct all of your charitable donations in one year because you have reached taxable income, you can transfer them for up to five years. Follow up carefully to identify remaining taxes, and use them before they expire.

Donation Tax Deduction Tip: Not All Charitable Institutions Qualify

Most, but not all, charitable organizations qualify for a deduction of this nature. You can deduct contributions only if they are made to a qualified recipient. Some charitable gift contributions to certain organizations, even if those institutions are exempt from income tax, do not represent a tax deduction. Neither do contributions to foreign people or governments, nor foreign charities or certain private foundations.

What Is Not Included?

Gifts donated to individuals

Contributions to political parties, political campaigns, or political action committees.

Contributions to chambers of commerce, unions, or union associations.

Gifts to for-profit educational institutions
and healthcare providers.

How Can A Financial Advisor Help You Help Others?

Although there are plenty of IRS documents that describe donation tax deductions in detail, they are often confusing to tackle alone. With such a complex subject matter, knowing you’re managing your donations and potential tax deductions appropriately is critical. A fiduciary financial advisor, particularly one with expertise in tax strategy can facilitate the process of contributing in a way that matches your values while benefiting from giving.

Donation tax deductions can be tricky because they require you to keep careful records, as well as be thoughtful about which contributions will actually be deductible. Your financial advisor can come in handy by transforming your donation tax deduction experience.

Donation Tax Deduction: The Benefits of Giving

Reflecting Your Values

Donation Tax Deduction Tip: Keep Track of Your Contributions

Donation Tax Deduction Tip: Focus on Your Goals

Donation Tax Deduction Tip: Not All Charitable Institutions Qualify

What Is Not Included?

Gifts donated to individuals

Contributions to political parties, political campaigns, or political action committees.

Contributions to chambers of commerce, unions, or union associations.

Gifts to for-profit educational institutions
and healthcare providers.

How Can A Financial Advisor Help You Help Others?

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