Making a charitable contribution to an organization you believe in can be a great way to lower your overall tax liability all while giving back to causes you believe in. Despite the desire to do good, it’s understandably confusing and at times overwhelming to navigate charitable contributions, how much you can give, and who you can give it to. As you prepare for tax time, we’ll help you get a better understanding of tax deductible donations and organizations approved for charitable donations.
Charitable cash contribution versus qualified contribution
It’s important to understand that the amount of charitable cash contributions a taxpayer can list as an itemized deduction is limited. Typically, the limit is 60% of a taxpayer’s AGI or adjusted gross income.
In some cases, a charitable contribution cannot be more than 20%, 30%, or 50% of your AGI However this does not apply to the majority of charitable donors and is reserved for organizations including privately operating foundations and domestic fraternal societies.
Qualified contributions however do not follow the same limit. Individuals can deduct qualified contributions of up to 100% of their total AGI.
Corporations on the other hand can deduct qualified contributions that are no more than 25% of the corporation’s taxable income. Any contributions that go over that amount will roll over into the next tax year.
It’s also important to keep in mind that the time of your contribution has to be before the close of the tax year, no matter the amount or organization.
What Are Eligible Qualified Organizations to Donate To
The IRS has a defined list of qualified organizations to which donations can be made out to. Being able to identify these qualified organizations is important as this is the only way to claim a donation deduction on your taxes. Qualified organizations are as follows:
- Taxpayers may deduct donations made out to a state or US possession including the District of Columbia. This donation can be claimed so long as it is done exclusively for public purposes.
- A community chest, trust, corporation, fund, or foundation, that was organized or created by the United States. The charitable organizations that fall under this category must be organized and operate exclusively for educational, religious, charitable, literary, and scientific purposes, or for the purpose of preventing cruelty to children and animals.
- Religious organizations including a church, synagogue, mosque, or another religious establishment.
- Organizations established by war veterans. This is one of the most common organizations individuals opt for when seeking to donate a car
- A non-profit volunteer fire company —another organization highly sought after for taxpayers wanting to donate a car
- Civil defense organizations that were created under local, state, or federal law.
- Domestic fraternal societies that operate under the lodge system. However, this is only an option if the contribution made is used for charitable purposes only.
- A cemetery company that operates as a non-profit so long as the funds are dedicated to the cemetery as a whole and not to a particular mausoleum crypt or burial lot
