Charitable Contributions and Federal Income Tax, Part 2

Following is a second blog entry with details about charitable contributions and federal income tax.  Additional information about charitable contributions is also available on the Internal Revenue Service’s (IRS’) web site under Publication 526.

In the previous entry, we covered the types of organizations that are considered qualified organizations—that is, organizations where the IRS will allow an itemized deduction as a charitable contribution when a taxpayer gives money or property to.  In this entry we will cover specific items that can and cannot be deducted as a charitable contribution.

In general, money or property that you give to a qualified organization can be deducted as a charitable contribution on your federal income tax.  It is generally easier to note the specific items or circumstances that make a donation note deductible from federal income tax as a charitable contribution.  These circumstances include but may not be limited to the following:

  • Donations made to specific individuals rather than to a qualified organization.
  • Donations made to organizations that the Internal Revenue Service does not consider a qualified organization.
  • Donations made to the extent where you receive a benefit in return for the donation.
  • Donations of your time.
  • Personal expenses you incur related to making a donation.
  • Expenses related to determining the value of donated property (as these are miscellaneous itemized deductions).
  • Donations of part of your interest in property you own.

In addition, even if your donation would otherwise qualify as a charitable contribution under the points noted above, the ability to deduct the donation may be limited by your adjusted gross income.  Deductions for charitable contributions are generally limited to no more than 50% of the taxpayer’s adjusted gross income in a given tax year.  However, there are situations where charitable contributions may be limited to only 30% or 20% of a taxpayer’s adjusted gross income.

Charitable contributions are only deductible up to 50% of a taxpayer’s adjusted gross income if the donation is to a qualified organization that is considered a 50% limit organization.  These organizations generally include qualified organizations except for veterans organizations, fraternal societies, non-for-profit cemeteries, and private non-operating foundations.  For these organizations, charitable contributions are limited to 30% of a taxpayer’s adjusted gross income.

In addition, charitable contributions of capital gain property may be limited to 20% of a taxpayer’s adjusted gross income.

The Internal Revenue Service provides a worksheet known as Worksheet 2 for calculating the deduction limits of your charitable contribution.

If you have charitable contributions that are not allowed because of the adjusted gross income limitations as outlined above, you can deduct the charitable contributions for the next five years.  These carry-forward deductions, along with any new charitable contributions in the next tax year, are likewise limited to the adjusted gross income limitations as noted above.

If you have made donations that you believe are charitable contributions or you are considering making a donation and you want to be sure it is done in such a way that it qualifies as a charitable contribution for federal income tax purposes, you should speak with a tax attorney.  A tax attorney can let you know with certainty what donations qualify as charitable contributions, as well as be sure your federal income taxes are calculated and filed properly.

by Mark Johnston

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.