Did you know everyone can get a charity donation tax deduction? Since 2020, everyone can deduct up to $300 of cash donations per person without having to itemize, meaning a married couple filing jointly could deduct up to $600 of donations and still use the standard deduction. Tax Break for everyone!
Making charitable contributions can be a great way to save money on your taxes. Donating to charity can have benefits for everyone. For the charity, it means they receive help from people who care about them. For taxpayers, it means a lower taxable income.
There are a few different ways to deduct a charitable contribution. You can donate cash, goods, or even stock and receive a tax deduction for your contribution. Here’s how to make the most of it at Tax Time!
Charity Tax Deduction: New Rules For 2020-2021
For the 2021 income taxes, which are due on April 18, 2022, there are two special rules that extend and expand the tax treatment for charitable contributions.
- New Charitable Contribution Deduction: For 2021, single taxpayers who claim the standard deduction on their tax returns can deduct up to $300 of charitable contributions made in cash. Married couples filing joint returns can claim up to $600 for cash contributions. This was also true in 2020 and a lot of tax filers missed it.
- If you itemize your deductions, you can claim charitable contributions deductions for up to 100% of your adjusted gross income. This is a pretty huge increase for the megawealthy and why Elon Musk made such huge charitable donations last year.
For a charitable contribution to be deductible, the recipient charity must be a qualified organization under tax law. Eligible charities would include religious institutions, nonprofits, and other tax-exempt organizations. You can find a complete list of qualified charities on the IRS website.
If Congress does not amend the law, the tax benefits will not apply for the 2022 tax year.
What Donations Do Not Qualify When You Use A Standard Deduction?
Some types of contributions still require a itemized deduction:
- Anything other than cash (e.g. Goodwill doesn’t count)
- Donations to private non-operating foundations (e.g. The Bill and Melinda Gates Foundation doesn’t count)
- Donations to new or existing donor-advised funds (These funds help build a charitable tax shelter for the rich)
- Deduction carry-forwards from prior years (If you max out your limit, you can carry forward the remainder)
- Donations to non-qualified organizations (e.g. political campaigns)
How Charity Tax Deduction Strategy Changed in 2021
This is great news for most people! Over 90% of taxpayers use the standard deduction and historically they have never been able to write off charity. And before the 2017 Tax Law doubled the standard deduction, many more people (~20%) itemized and were able to include their charitable donations. The change came out of an agreement between the Congress and large charitable organizations to encourage contributions during the pandemic. I hope it sticks around!
Historically, it was often better to group your charitable contributions into a single tax year so that you could load up an itemized deduction. Some people choose to donate the gifts they would have given in two years over one year. Then they don’t donate anything the next year.
In 2021 some taxpayers, particularly those who are not homeowners, may find that the $300 and $600 deductions for charitable gifts make that cluster strategy pointless. Until it goes away.
Special Charitable Tax Deduction Concerns for Women
For me, charitable donation is right up there with building generational wealth, as a moral imperative. I will do it even if I don’t get a tax break. A couple of things I have learned on my journey :
Political Donations Are Not Deductible. But You Should Still Donate!
Fortunately or unfortunately, donations to PACs and political campaigns don’t qualify for deduction. Personally, I have supported the Higher Heights for America PAC, which is dedicated to electing more progressive Black women at the large metro, state and federal levels. I have also supported individual women in office from Hilary Clinton to Stephanie Abrams. In a million years, there will never be an accord in the Senate that allows me to write off these donations. That’s fine. I’m going to keep doing it and I hope you will, too, even if you are on the other side of the aisle, because more women in government will result in better democracy for all of us.
Women’s Health Organizations Are Important
In the United States, women’s health is radically underfunded and underserved, and it results in economic loss for women and the highest maternal mortality rate in the developed world. (Like, Greece beats us. By a lot.) You can make change by directing your tax deductible donations to qualified organizations such as The Black Women’s Health Initiative and Planned Parenthood, who provide women’s healthcare because our government won’t.
There Are Limits to How Much You can Write off at Goodwill
My house has become a weigh station for kids gear, and stuff my Mom wants to get rid of but can’t bear to leave at Goodwill. I was the last one to have kids among my friends, so I have all the baby clothes. All of them. They get shipped here. Send help.
Also, we itemize. So I take a lot of stuff to Goodwill, which finds a second (or third, or fourth) life for 85% of donations they receive. I also donate to homeless prenatal projects, and there is probably one in your area (check the mommy boards).
BUT, there are limitations to how much in donated goods you can write off without it being a major headache to justify on your taxes. And, it doesn’t work if you don’t itemize. Consider, selling the items instead. Yes, you should declare this income. But all income is good if you have the time for it, even if it’s taxable, and many women have built a side hustle from selling the crap in their house.
How much do I need to give to charity to save money on my taxes?
In 2021, any amount of charitable donation could have some positive impact of on your tax return. That’s limited to $300 per person if you use the standard deduction and up to 100% of your AGI if you itemize.
What this means is there any dollar donated up to these limits reduces your taxable income. The tax process uses your taxable income to calculate your tax, so the lower it is the less tax you pay!
What is the most that I can claim as a tax deduction for my charitable donations?
For 2020 and 2021, the maximum charitable writeoff is $300 per person if you use the standard deduction (so $600 if you’re married and file together) and up to 100% of your AGI if you itemize.
But…. it goes back to pre-COVID rules for 2022, much like the expansion of the Child Tax Credit, unless Congress steps up. So this year, Charity Deductions could look like this:
- You must itemize your deductions to receive any charitable write off
- Tax filers with itemized deductions can deduct up to
- 60% of their adjusted gross incomes (AGI) for cash donations to qualified charities.
What do I need in order to claim a charitable contribution deduction?
Once you’ve decided to give to charity, here’s how to make it airtight in an audit:
- Make sure the non-profit organization is a charity. This means it is a 501(c)(3) public charity or private foundation. You can check it on the IRS Exempt Organizations Select Check tool.
- Keep a record of how much money you donated to charity. An email acknowledgement from them is fine, or even a list of the date, the amount and who got it. More on this below.
- Some larger non-cash donations need to be appraised.
- Get your paperwork ready and file your tax return!
Lost Donation Receipt! What do I do?
When you file your taxes, you will not submit your receipts. Instead, you will submit a list of donations. The IRS requires that you have documentation, but you don’t have to hand it over with your return. So what do you do?
Well, it’s Tax Fraud if you can’t produce “Official Proof” in an audit. Don’t commit Tax Fraud. May sure you have a record. Somewhere.
- Call/Email the Organization. Most of these records are electronic, so it should be pretty easy to get a duplicate receipt.
- Check your email. Most of my charitable donations are online and come with an email receipt
- Look at your bank account, and mark the date, amount and account it came from.
If you made a cash donation, “Official Proof” could be your bank account or credit card statement, a receipt from the charity (including date, amount and name of the organization) or a canceled check. If you donated through work, keep a copy of your pay stub or W-2 with show the charity’s name, amount, and date of the contribution.
Usually I have my husband enter all his charitable donations in a google spreadsheet, and I add mine. We have the receipts… somewhere. But I’m not going through the work of digging them up until I get audited. Which is unlikely to happen.
Alternately, I have clients who keep every damn receipt and rest easy knowing that if they ever get the audit call, they will just hand the auditor a chunky file.
Non-cash Contributions – How Much Can You Write Off At Goodwill?
OK, Mommies, Circle up! Documenting your writes off for donated goods varies depending on how much the donation is worth:
- Under $250: A receipt from the organization showing their name, the date of the contribution, and a description of what was given. (E.g. The receipt that Goodwill lets you fill out.)
- From $250 to $500: These require a “Contemporaneous written acknowledgment” (aka the email acknowledgment they sent you). It must be written by the organization (email is ok) and include a description of the donation, whether you received anything in return, and good faith estimate of the value of any such goods or services.
- Between $500 and $5,000: All of the above, plus you need to file Form 8283 with your tax return.
- Over $5,000: All of the above, plus a written appraisal of the donated property from a qualified appraiser.
Can I Deduct GoFundMe Donations?
Donations made to a personal GoFundMe fundraiser are generally considered to be personal gifts, which means they are not guaranteed to be tax-deductible.
If you are contributing to a nonprofit, IRS-qualified charity (e.g., the Red Cross), donations to their GoFundMe campaigns are generally tax-deductible. You can only do this through “GoFundMe charity fundraisers”, “GoFundMe Causes” and GoFundMe.org. For these, donors receive tax receipts automatically PayPal Giving Fund or the charities themselves.
And… when GoFundMe goes to an individual, its subject to the IRS reporting requirements for gifts. If you give more than the annual gift limit ($15,000 for 2021) to file a gift tax return and maaaybe pay some tax.
Are there tax deductions for volunteering?
The IRS has rules that do not let you deduct the value of your time or service when you volunteer for a qualified organization. However, you can deduct money you spend volunteering, as long as it is not personal, living or family expenses.
- You can only be reimbursed for the expenses that are directly related to the volunteer work you did. This means that the expenses cannot have been incurred for personal, living or family purposes – you cannot deduct them. Keep your receipts!
- You can deduct mileage to charitable events and volunteer work, or mileage you used to hauling stuff to a donation site. To do this, the easiest way is just to keep a log of your miles.
“Quid Pro Quo” Contributions – Where’s my TShirt?
There are some gray area donations – where you make a donation and get something in return. These are called “Quid Pro Quo” donations.
For example, if you donated $50 to a charity and they gave you a $20 gift certificate for an auction item, you can only deduct $30 of the donation.
The charity is required to tell you how much the donation is worth (fair market value), before the transaction. so you can make an informed decision.
WHERE CAN I GET HELP?
There are lots of ways to get free taxes prep and advice. I always direct people to reach out to their local VITA program, where they can take advantage of FREE advice, from certified volunteer nerds like me!
If you’re looking to give back this year and get a tax break, we’ve got you covered. In this blog post, we outlined the different types of donations that are tax deductible, as well as what you need to keep in mind when making a donation. We also shared some tips on how to deduct your volunteer work and mileage expenses. If you have any questions, be sure to reach out to your local VITA program for free advice!