Update to below: As a result of the CARES Act legislation (a COVID-19 relief measure), a new charitable deduction up to $300 was created for 2020 and later extended to 2021, up to $600 per household for married filing jointly. What is notable about this is that you can claim the deduction even if you claim the standard deduction. Previously, you had to itemize your taxes to claim the deduction. Additionally, if you’re a heavy itemizer, you can claim up to 100% of your AGI as a deduction (2020 only).
Prior to my current day job, I worked in fundraising for a 501(c)(3) charitable organization.
In that role, the most common questions I received were around tax deductions and donation receipts.
“Do I have to have a receipt to deduct my donation?”
“What amount of donation do I have to have a receipt for?”
“I only need a receipt if my donation is over $250, right?”
I got these types of questions so often, that upon reflection today, it makes me wonder if people avoid itemizing their donations at all, for fear that they might get audited by the IRS. Taking it a step further, are people avoiding donating altogether because they don’t know how to properly document and deduct them? That would truly be a shame.
If you itemize your taxes, you should definitely deduct your charitable contributions!
2020 Update: with the CARES Act legislation providing a number of financial COVID relief measures, there is a relevant 2020 update on this information. There is a new $300 donation deduction provision for those who claim the standard deduction (in addition to those who itemize).
To help clear up some of the confusion around what SHOULD be an easy topic, I decided to put together a little guide on deducting charitable donations and when you need proper documentation, such as a donation receipt or written acknowledgment.
Donations & Standard Deductions
First off, it’s worth noting that if you don’t itemize (like a large majority of the country), a donation receipt is not needed because you cannot deduct your donation if you claim the standard deduction. In other words, all taxpayers are eligible for a standard deduction, and a small percentage will forego that in favor of itemizing deductions. The standard deductions are as follows:
2020 Standard Deductions:
|Filing Status:||Deduction Amount:|
|Married Filing Separately||$12,400|
|Married Filing Jointly (& Surviving Spouses)||$24,800|
|Head of Household||$18,650|
2021 Standard Deductions:
|Filing Status:||Deduction Amount:|
|Married Filing Separately||$12,550|
|Married Filing Jointly (& Surviving Spouses)||$25,100|
|Head of Household||$18,800|
The Republican Tax Reform Impact on Charitable Deductions
I wrote about this at length, but the Republican “Tax Cuts and Jobs Act” (aka “Republican tax reform” will create a charitable donation deduction crash, because of the increased standard deduction amounts, starting with the 2018 tax year.
This will dramatically reduce the number of itemized filers, which will reduce the incentive to make charitable donations (but you still should, because you’re a good person and stuff).
It has been suggested by some that you “bunch donations” from multiple years in to one year in order to be able to itemize them. If everyone follows this strategy, however, it could have disastrous cash flow consequences for charitable organizations.
How to Deduct a Charitable Contribution
So, if you know 100% you won’t be itemizing, don’t worry about donation receipts. If you aren’t sure, or will itemize, collect the receipts throughout the year. I personally file all receipts in a folder as soon as I make the donation.
It’s also worth noting that you do not need to turn in your receipts when you file your taxes. But you would need them if you were to be audited, to furnish proof of your donation.
When to Deduct your Donation
You deduct your donation in the year when you actually make it. If you mail a check in 2020 and the charity doesn’t cash it until 2021, your deduction is for 2020. For non-cash donations, you deduct in the year that the property was given. The exception is you can carry over deductions from any year in which you surpass the deduction limits (discussed next), up to a maximum of 5 years.
Most of us will never have to worry about this, but there is an IRS maximum charitable donation limit. Essentially, if your donations are 20% or less of your adjusted gross income, you do not need to worry about hitting the limit. There are a few exceptions where you can go up to 30% or 50% of your AGI, and if you approach those levels, you should read the deduction limits section of IRS form 526 for more information. Generally, you can deduct cash contributions in full up to 50% of your adjusted gross income, property contributions in full up to 30% of your adjusted gross income, and appreciated capital gains assets in full up to 20% of your adjusted gross income.
What Organizations are Considered Qualified for a Deductible Donation?
The IRS has a tax-exempt organization search to find if donation you would like to make to the would be tax deductible to that organization. The organization must be designated as a 501(c)(3).
Note that donations to political entities are not tax deductible. Sorry, Super PACS.
Whether you need a receipt or not depends on whether the donation is cash or non-cash, and the amount, or value of the donation.
If you deduct a cash donation, regardless of amount, you must keep some form of documentation. But there’s an important distinction between donations under and over $250.
- Single or Multiple Cash Donations Under $250: you can provide a receipt from the organization, bank record, credit card statement, or cancelled check that shows the name of the organization, the date of the donation, and the amount. If the donation was a payroll deduction, your donation receipt here is your W2, a paystub, or some other form of payroll proof provided by your employer.
- Single Cash Donations Over $250: the key difference when you go over $250 is you must receive a written acknowledgement from the recipient of your donation in order to claim the deduction. The written acknowledgement must include: amount of cash you donated, whether you received any goods or services in return, the value of those goods or services and (excluding religious faith value). Note that the date of donation must either be included in the acknowledgment or proved by bank record.
- Multiple Cash Donations Over $250: same rules as under $250 apply, so long as no single donation was over $250. You only need written acknowledgment from the charity on the single donations over $250.
One key takeaway is this – never give actual “cash” as part of a cash donation. Use your credit card or check, so you have record in case the IRS comes calling.
Varying rules apply, based on the level of donation.
- Under $250: get and keep a receipt showing name of organization, date and location of contribution, reasonably detailed description of property, and the fair market value of the donation (many tax software programs will help you determine this, but you can find out more in IRS publication 561). However, the IRS does say that you are not required to provide receipt when it is impractical to get one (i.e. an unattended drop site).
- At least $250 but no More than $500: just like with cash donations, when you go over $250, you must receive a written acknowledgment from the organization in addition to everything listed in the “under $250” section.
- Over $500, but no More than $5,000: everything in “at least 250, but no more than $500” is required. You must also include how you got the property, the date you received it, and the cost basis of the property.
- More than $5,000: Everything in “$500-$5,000” but also a qualified written appraisal from a qualified appraiser.
Donation Receipt Discussion:
- Have you avoided donating because you didn’t know how to properly document with a donation receipt?
- Have you not itemized a donation because you were worried you didn’t have proper documentation?
- Have you ever been audited and not had a proper donation receipt?