When it comes to a taxpayer calculating federal income tax, one of the most common itemized deductions are charitable contributions.
Charitable contributions for federal income tax purposes, as defined in Publication 526 of the Internal Revenue Service (IRS), are gifts given by a taxpayer to a qualified organization for that organization’s use, without the taxpayer receiving or having the expectation to receive anything of value in return.
Charitable contributions are a popular itemized deduction because they are fully deductible on a taxpayer’s federal income tax up to the value of the donated money or items, generally so long as the total charitable contributions in a single tax year do not exceed 50% of the taxpayer’s adjusted gross income. Charitable contributions are only deductible in the tax year when the charitable contribution is made to the qualified organization.
If a taxpayer’s charitable contributions exceed 50% of the taxpayer’s income, the excess amount may be carried forward for deduction on future tax returns for up to five years, until the excess amount is used up.
The Internal Revenue Service (IRS) defines five types of organizations that can be considered qualified organizations:
- An organization in the United States or one of its possessed territories (such as Puerto Rico) that exists solely for one or more of the following purposes: religious, charitable, educational, scientific, literary, and/or the prevention of cruelty to children or animals.
- An organization in the United States or one of its possessed territories that exists for the benefit of war veterans.
- An organization in the United States that operates under the lodge system, so long as contribution to that organization are solely for one or more of the following purposes: religious, charitable, educational, scientific, literary, and/or the prevention of cruelty to children or animals.
- Not-for-profit cemeteries, so long as the contribution is not earmarked by the taxpayer for the care of a specific lot or crypt.
- The United States, a state, the District of Columbia, or a possessed territory of the United States, so long as the contribution is for public purposes.
Qualified organization include but may not be limited to the following types of examples:
- Churches and other religious bodies or organizations
- Not-for-profit charitable organizations such as The Salvation Army or The United Way
- Not-for profit educational organizations such as The Boys Scouts of America, colleges, museums, and daycares if essentially all the childcare is provided to allow parents to be employed.
- Not-for-profit hospitals and other medical organizations
- Emergency energy funds of utilities, when such funds are for emergency energy needs of individuals
- Not-for-profit volunteer fire departments
- Public parks and recreation facilities
- Civil defense organizations
In addition, under treaties in place between the United States and Canada, Mexico, and Israel, certain contributions made to not-for-profit and other organizations within one or more of these three nations may be used as an itemized deduction as a part of charitable contributions for federal income tax.
If you have questions about if certain donations are charitable contributions you can claim on your federal income tax, you should speak with a trained tax attorney. A tax attorney can advise you on whether gifted amounts are charitable contributions and help you calculate your federal income tax.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.