Ever wonder if there was a maximum limit to how much you can donate to charity and deduct from your taxable income?
Believe it or not, the IRS has charitable donation limit maximums.
While this may not seem like something you’d ever encounter, it would not be wise to completely write off that possibility. If you intend to donate a large cash or high value non-cash amount to a qualified 501(c)(3), it is in your best interest to get the full allowable tax deduction for your generosity. And if you don’t itemize your taxes, you may want to hold off on donating altogether.
This is an area that I have particular expertise in, as I worked in fundraising for a non-profit for 3 years.
Let’s get started with the basics.
Are All Donations Tax Deductible?
No. The IRS only allows you to deduct donations from your taxable income if the donation was made to a qualified tax-exempt organization. 501(c)(3) organizations are included, but other types of orgs are as well. Make sure you do your research to determine if the organization is tax exempt. The big exceptions are that contributions made to political campaigns or organizations or for-profit organizations are not qualified charitable contributions, and are not tax deductible.
What is the Maximum Charitable Donation Limit Per Year?
This is where things get a bit tricky. There are maximum IRS charitable donation amounts, but they are a percentage and not a defined dollar amount. The percentages are based off what you donate and who you donate it to, with a maximum qualified charitable contribution of 60% of your adjusted gross income.
According to IRS publication 526 (the gospel for qualified charitable contributions):
The amount you can deduct for charitable contributions generally is limited to no more than 60% of your adjusted gross income. Your deduction may be further limited to 50%, 30%, or 20% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to.
See that form and the instructions in the itemized deductions worksheet for more info on how much you can deduct.
In practical terms, at a minimum, you will be able to deduct 20% of your AGI. At a maximum, you will be able to deduct 60%. If your donation totals less than 20% of your AGI (the case for the overwhelming majority of people), then don’t worry about all of the details. Deduct and move on.
2020 and 2021 Updates: with the CARES Act legislation providing a number of financial COVID relief measures, there is a relevant 2020 and 2021 update to the below information. Those who itemize taxes can deduct up to 100% of adjusted gross income in 2020. If you give more than your AGI, the excess deduction amount can roll over to next year, as previously. Separately, there is a new $300 donation deduction provision for those who do not itemize their taxes for both 2021 and 2021 (it was increased to $600 per married filing jointly in 2021).
What if you Donate More than the IRS Limit? Can you Carry Over Donations to Future Years?
Yes. You can carry over deductions from any year in which you surpass the IRS charitable donation deduction limits, up to a maximum of 5 years. The same percentage limits discussed earlier apply to the year that you carry over the donation amounts to.
Your total charitable deduction for the year to which you carry your contributions can’t exceed 60% of your adjusted gross income for that year.
What Proof do you Need to Claim a Charitable Donation?
By default, always at least get written confirmation. I won’t get in to the full details here, since I have previously gone in to depth about cash and non-cash scenarios where you need a charitable donation receipt, appraisal, or no written acknowledgement at all in order to deduct a donation. It’s important, so read up. IRS publication 561 is also a valuable read.
Can you Deduct Charitable Contributions if you Don’t Itemize your Taxes?
Other than the temporary $300 exception for 2020 and 2021, in order to deduct a charitable contribution, you must itemize your taxes. THIS. IS. HUGE.
With increased standard deductions, very few American taxpayers will itemize their taxes, and opt for the standard deduction instead. If you take the standard deduction, you can’t deduct charitable contributions.
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 the standard deduction was increased in 2018.
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).
- $12,400 for single filers
- $12,400 for married, filing separately
- $24,800 for married filing jointly
- $18,650 for head of household
- $12,550 for single filers
- $12,550 for married, filing separately
- $25,100 for married filing jointly
- $18,800 for head of household
I can’t overstate how important this is to your tax strategy. If you have a low deduction year, in which you think you will take the standard deduction, it might be wise to hold off on donating until you have a higher deduction year (i.e. one with significant deductions like mortgage interest, education deductions, and property taxes).