- In order to qualify for a tax deduction for a charitable donation, the donation has to be made to an organization approved by the IRS. Most organizations are required to apply for and be approved for tax-exemption status under section 501(c)(3) of the tax code. Any organization that you donate to will disclose whether they have this status or not. If in doubt, call the IRS and ask if they are on the list. Some organizations, such as churches, do not require 501(c)(3) status to be qualified organizations.
- In order to claim the deduction, the IRS requires that you keep meticulous records of all donations. Cash donations over $250 must be accompanied by documentation authorized by the charity. Donations of property or goods requires even more documentation. Noncash donations that total more than $500 in the year require the filing of Form 8283 which requires details of the items donated and their fair market value. Any single noncash donation over $5,000 requires an official appraisal to determine its value.
- To claim the charitable donation deduction, you must itemize your deductions. The deduction is recorded on Schedule A to the 1040 return. There are limitations on how much of your donations you can deduct. With cash donations, you are generally allowed to deduct up to 50 percent of your taxable income. Noncash donations are limited to 30 percent of your taxable income. This prevents high tax-bracket individuals from wiping out all of their taxable income with deductible contributions to charity.
- If you have donated more than your allowable deduction limit, you can carry the excess donations over to next year's tax return. Donations can only be carried forward for five years, so monitoring and using up old contributions first ensures that you don't lose their tax benefits. Donations that are only pledged or promised but not delivered by year end do not count as donated for tax purposes.
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