One of the perks of making a charitable donation is the ability to take a tax deduction. Even though you don't have to submit donation receipts with your tax return, the IRS requires you to have the receipts before you can take a charitable deduction. The maximum you can deduct depends on your AGI.
You don't have to submit donation receipts with your tax return, but the IRS requires that you have the receipts before you can take a charitable deduction. The type of documentation you’ll need depends on whether you donate cash or property, as well as the amount or value of the gift. Even if you fully comply with these record-keeping requirements, the maximum you can deduct ultimately depends on your adjusted gross income, or AGI.
Maximum Deduction and Your AGI
Having the proper receipts and acknowledgments affects whether you can take the deduction or not, whereas the AGI reported on your return can limit the amount that’s deductible. The total amount of your charitable deduction – reported as an itemized deduction on Schedule A – generally cannot exceed 50 percent of your AGI. If it does, the excess can be carried forward to future returns.
This percentage can drop to 20 or 30 percent for donations made to certain organizations and for contributions of certain capital assets that have appreciated in value. Under the Tax Cuts and Jobs Act, the most recent tax law, that percentage goes up to 60 percent for cash-only donations to public charities.
The IRS expressly states that all cash donations, regardless of amount, are not deductible unless you retain at least one piece of documentary proof that the donation was actually made. This can include bank records, such as a canceled check, a receipt from the nonprofit organization, a credit card statement, and a pay stub or W-2 form when you make the donation through payroll deductions at work.
The IRS also requires that you obtain a written acknowledgment from the recipient organization for each cash donation of $250 or more. But if you were to donate $50 to your church every Sunday, a written acknowledgment isn’t required because no single donation was for more than $250.
Donations of Property
When you donate property that totals less than $250 in value, such as used clothing or household items, you need only obtain a receipt that includes the organization’s name, location, a description of the items donated and the date the donation was made. You do, however, need keep a separate log of each donation for your records.
Charitable deductions for property or cash donations worth $250 or more also require a written acknowledgment. In any year you take a deduction for non-cash donations, you’ll have to prepare Form 8283 with your return. Form 8283 requires information such as the date of each contribution, how much you originally paid for the item and its value. And if your donation is valued more than $5,000, a representative from the charity must sign the 8283, and you must obtain an appraisal.
Valid Written Acknowledgments
To be valid, all written acknowledgements must include specific information to be valid. This includes the amount of cash donated, a statement noting whether you received goods or services in exchange for the donation, and if so, the value of those goods or services. Receiving something in exchange reduces the deductible portion of your donation to the difference between the gift's value and the value of what you received.
A written acknowledgment must also have a statement that you only received an intangible benefit, such as a religious benefit, from making the deductible portion of your donation. If the acknowledgment includes the date of donation, you don’t need to retain any other documentary proof, such as the canceled check. Acknowledgments for property donations, however, must also include a description of the item.
Used Car Donations
Special rules apply when you donate a used car. Your maximum charitable deduction for a donated vehicle is generally limited to the price the charity sells it for. In limited circumstances, such as when the organization decides to use the vehicle rather than sell it, you can deduct the car’s fair market value instead. In both cases, receipt of a written acknowledgment from the charity is required.
Allowable Charitable Donations
The IRS only allows deductions for charitable donations to qualified organizations. The IRS provides a list of acceptable organizations that includes war veterans' organizations, religious organizations, nonprofit volunteer fire companies and civil defense organizations. With a broad category of organizations that are "organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals," there is no shortage of qualified organizations to which to donate.