Tax-Time Tips for Claiming Charitable Deductions

As the April 15 tax deadline nears, it is a good time to remember that you may be eligible for a tax deduction for your charitable contributions. The following are basic guidelines on how to claim tax deductions for your gifts. Be sure to consult a tax specialist for specific information.

    Note: Several important changes for charitable contributions are in effect for tax year 2006 as a result of enactment of the Pension Protection Act, which added an incentive for donating to charity from an IRA and new restrictions on donations of various types of property. In addition, donors should be aware that new record keeping rules are in effect for all cash donations, regardless of amount, beginning in 2007. See the IRS website for guidance on these changes. Also, see Independent Sector’s website for additional changes for charitable giving and new rules for donor-advised funds and supporting organizations.


How do I claim a tax deduction for my charitable gift?
Charitable deductions can only be claimed on Schedule A of IRS Form 1040. Taxpayers who take the standard deduction cannot claim deductions for charitable contributions. Be sure to have the proper documentation of all contributions you list on the return (see below).

Are there special rules for donating from an IRA?
As enacted in the Pension Protection Act, taxpayers age 70½ and older are permitted during 2006 and 2007 to make tax-free donations totaling up to $100,000 per year from their Individual Retirement Accounts (IRAs) to certain public charities. You may not, however, also claim the donation as a charitable deduction. Contributions to supporting organizations, donor-advised funds, and private foundations do not qualify for the tax-free treatment. Check with the organization you wish to support to determine whether it qualifies. See Independent Sector’s website for more information on this important giving incentive.

Which gifts qualify for deductions?
You may deduct your contributions to religious, charitable, scientific, educational, literary, and other institutions that are incorporated or recognized as 501(c)(3) organizations. Gifts to state and local government, the federal government, qualifying veterans and fraternal organizations and certain nonprofit cemetery companies also may be deductible. Gifts to other kinds of nonprofits, such as 501(c)(4) organizations, cannot be deducted. To see whether your charity is eligible to receive tax-deductible contributions, visit the on-line version of IRS Publication 78.

Do I need any records in order to take a deduction for a charitable contribution?
Yes, and the record keeping requirements vary according to the amount and type of gift. For cash contributions less than $250, written records including personal bank registers, canceled checks, credit card or cash receipt will suffice for donations made in 2006. Beginning in tax year 2007, all cash contributions regardless of amount must be supported by a cancelled check, dated bank or credit card statement or a dated receipt from the charity. Taxpayers will no longer be able to satisfy this requirement with their own written records. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank and credit card statements should show the name of the charity, the date and amount contributed.

For contributions of $250 or more, you must obtain a “contemporaneous written acknowledgment” from the charity, either on paper or electronically (such as by email) which must contain the name of the organization, date and amount of a cash contribution or description of a non-cash contribution, and a description of benefits (if any) received in return with an estimation of their value or if none, a statement to that effect.

What records should I keep if I give to charity through a payroll deduction?
Pledge cards for workplace giving programs, along with a pay stub, Form W-2, or other document provided by an employer will satisfy the new cash contribution record keeping requirements. The documents must show the name of the charity and the amount donated. See IRS guidance on donations made by payroll deduction.

So what should I have received from the charities I gave to last year?
Most non profits provide thank you letters and receipts for any gift. However, by law they are required to provide the donor with a written statement for gifts that exceed $75 if the nonprofit provided goods or services in return. Such disclosure statements must include a good faith estimate of the value of the return benefit and must advise the donor that only the amount of the gift in excess of the benefit is deductible. For gifts over $250, the donor must obtain from the charity a written acknowledgment whether or not the donor received any goods or services in return.

If you haven’t already received these written acknowledgements from the nonprofit organizations you gave to, be sure to contact them so you can keep your records properly—and be ready just in case you are ever audited. IRS Publication 1771 (PDF) provides helpful information on acknowledgement and disclosure requirements for charitable contributions.

How much can I deduct?
You can only deduct the amount of a contribution given voluntarily with no expectation of a commensurate return. If you received a financial or economic benefit in return for making a gift, the payment is not a deductible charitable contribution except to the extent that it exceeds the fair market value of the benefit. For example, if you gave $100 to a museum and received a book in return that sells regularly for $25, you can only claim $75 as a charitable deduction. IRS Publication 526, Charitable Contributions (PDF), provides further explanation and examples of the portion of a contribution that is deductible.

Is there a limit to how much I can claim?
For most cash contributions, you can only deduct up to 50% of your aggregate gross income (AGI). Above a certain threshold ($150,500 for most filers in 2006) the total of itemized deductions is usually reduced by 3 percent of adjusted gross income. See the Instructions for Schedule A (Form 1040) (PDF), line 28, for more information on figuring the amount you can deduct.

Special rules apply for some contributions depending on the type of donation you have made (gifts of stock, gifts of capital gain property, etc.) and the type of organization to whom you have made a donation. The IRS provides a worksheet in the instructions for Schedule A of Form 1040 and in Publication 526 (PDF) to determine if you are subject to any of these rules.

Does every benefit, even a T-shirt, reduce the amount of the contribution that can be deducted? No. Some benefits are so insignificant they may be disregarded. If an item is an “insubstantial” benefit, the amount of the contribution that can be deducted is not reduced by the value of the item. For the 2006 tax year, insubstantial is defined as less than $8.60.

Can I refuse a benefit and so avoid having the benefit treated as having been received in return for a charitable contribution?
Yes, but only if you explicitly rejected the benefit at the time of the gift. It is not enough that you simply chose not to use the benefit after you already received it.

I bought Girl Scouts cookies—can I deduct the cost of those?
No. You paid the fair market value price set by the seller. If you also made a separate contribution to Girl Scouts, then of course you could deduct that according to the rules listed above.

Can I make a charitable contribution of property instead of cash?
Yes, but special rules apply for determining the value of donated property, for the records that the donor must keep, and for the documents that must be filed with the IRS. Be sure to consult with a tax specialist and with IRS Publication 561, Determining the Value of Donated Property (PDF).

    Note: New rules were enacted in August 2006 for donations of various types of property. See a summary (PDF) on the IS website for more information on new rules for donations of land for conservation purposes, historic façade easements, taxidermy property, partial interests in personal property such as artwork, and stricter appraisal requirements.

May I claim a deduction for donations of clothing and household items?
Yes, but for donations after August 17, 2006, no deduction is allowed for clothing and household items that are not in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

How much may I deduct for donating my car?
In general, deductions for vehicle donations of over $500 are now limited to the sale price obtained by the charity. In some limited circumstances, however, the donor may claim fair market value, which is often higher. Deductions for contributions of used vehicles, boats, and airplanes of over $500 must be accompanied by a written acknowledgement from the charity. The IRS has issued a new Form 1098-C (PDF) and instructions (PDF) for vehicle donations. Read more about these rules.

I volunteered in 2006. Can I deduct the value of my services?
No. Individual taxpayers may not deduct the value of their donated services.

Can I deduct the expenses I incurred while volunteering?
Some expenses incurred when volunteering services, for example, travel expenses, are deductible if they are not reimbursed by the charity. The mileage rate for the 2006 tax year is 14 cents per mile. However, travel expenses are deductible only if there is no significant element of personal pleasure, recreation, or vacation associated with the travel. For example, if you volunteered to help with a youth club camping trip, but visit friends along the way or spent time with your own family, you could not deduct these travel expenses. See the IRS website for special mileage rates that applied for charitable hurricane relief efforts in 2005 and 2006.

    This is not formal legal advice. Be sure to consult with a tax specialist for specific advice for your situation.

Last updated: February 5, 2007