Learn about types of donations and tax deductions for donations.
While donations to charitable and nonprofit organizations are tax deductible and can be used to lower tax liability, it is important to note that not all nonprofit organizations are tax-qualified. To confirm whether an organization is tax deductible, donors should call the Internal Revenue Service (IRS) or read the IRS Publication 78.
Cash and property donations to charitable and nonprofit organizations can only be claimed if income tax deductions are itemized. Time spent on charitable work is not deductible; however, individuals can deduct mileage and car expenses if personal vehicles were used for charitable activities.
Monetary donations are defined as contributions in the form of check, credit card, cash or payroll deduction. To claim cash donations on a tax return, receipts or bank records are necessary to validate the amounts. Cash donations also include any out-of-pocket expenses incurred while engaging in charity activities, such as the cost of donated food and supplies, professional fees, mileage expenses and gas costs.
The IRS permits tax deductions for gently used clothing and household goods, such as furniture, electronics and appliances. The amount of the deduction is based on the item's fair market value at the time of the donation. Individuals can determine fair market value clothing and household items by checking prices in thrift stores, or by looking online at the donation valuation guides available from Goodwill and other charitable organizations.
Blue books and other car pricing guides may be used to determine the fair market value of a donated car. However, it is important to note that the actual fair market value of a donated car can be lower than the amount listed in the pricing guide if the car has engine problems, excessive mileage, body damage or other types of wear and tear. If the vehicle is sold by the charitable organization, the sale price should be the amount deducted .
According to the IRS, an appraisal from a marine surveyor should be used to determine the value of all boats, except inexpensive ones. Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes should be completed by the charitable organization and submitted with the donor's tax return.
For all noncash donations exceeding $500, taxpayers must complete Form 8283, Noncash Charitable Donations. A written appraisal should be submitted with any deduction valued more than $5,000 , unless it is equal to the charitable organization's profit from its sale.
Charitable deductions are typically capped at 50 percent of the taxpayer's adjusted gross income. However, stock gifts and contributions to certain types of charities have lower percentage limits. According to Network for Good, taxpayers who receive a financial or economic benefit in return for charitable contributions are required to decrease their deduction by the fair market value of the benefit. For example, if an individual received a $25 gift card as a token of appreciation for a $100 donation to a local charity, the charitable deduction claimed should be $75.