Charitable Contribution Deduction: Tax Years 2023 and 2024

Charitable contributions are a tax-saving opportunity. Not only does the charity benefit, but taxpayers enjoy tax savings by deducting part or all of their contributions on their tax returns.

Taxpayers can deduct charitable contributions for the 2023 and 2024 tax years if they itemize their tax deductions using Schedule A of Form 1040. Charitable contribution deductions for cash contributions to public charities and operating foundations are limited to up to 60% of a taxpayer's adjusted gross income (AGI).

Qualified Deductions

Tax law requires that deductions are allowed only for contributions that serve a charitable purpose. A recipient organization must qualify for tax-exempt status as required by the tax code and determined by the Internal Revenue Service (IRS).

Qualified organizations include those that operate for religious, charitable, scientific, literary, or educational purposes and the prevention of cruelty to animals or children. Donations to nonprofit veterans’ organizations, fraternal lodge groups, cemetery and burial companies, and certain legal corporations may also apply.

"Quid Pro Quo" Contributions

"Quid pro quo” donations are those in which the donor receives an economic benefit such as goods or services in return for the gift. The deduction is limited to the amount of the contribution that exceeds the fair market value (FMV) of the shirt when a donor receives a T-shirt in return for donating. The deductible amount is $20 if the contribution is $40 and the FMV of the T-shirt is $20.

Donated Goods and FMV

Charitable contribution deductions are allowed for donations of goods such as clothes and household items to Goodwill, the Salvation Army, and similar charities. Used clothing and household items must be in usable, good condition and the deduction amount is limited to an item’s fair market value at the time of contribution.

Special rules apply to vehicle donations. If the fair market value of a vehicle is more than $500, taxpayers can deduct the lesser of:

• The gross proceeds from the sale of the vehicle by the organization or
• The vehicle's fair market value on the date of the contribution.

If the qualified donee sells the vehicle for $500 or less, a taxpayer can deduct the lesser of:

• $500
• The vehicle's fair market value on the date of the contribution.

A taxpayer must file IRS Form 8283 with their tax return when they claim more than $500 in total deductions for non-cash contributions. Some tax preparation software packages include calculators to help determine the fair market value of various items. IRS Publication 561 is a useful resource to help determine the value of non-cash contributions.

Non-Cash Gifts

The total deductions are capped at 20% to 50% of a taxpayer’s AGI for non-cash contributions and gifts to non-qualifying organizations, including private non-operating foundations, supporting organizations, donor-advised funds, and other charitable organizations that do not qualify as public charities.

Non-cash contributions to qualifying organizations like public charities and operating foundations are capped at 50% of the individual donor’s AGI. Contributions of appreciated capital gain property are generally capped at 30% of the AGI if they're made to qualifying organizations and 20% of the AGI in the case of non-qualifying organizations.

Record Keeping

Taxpayers must keep detailed records to substantiate their charitable deductions. The type of record depends on the type and amount of the contribution: cash, non-cash, and out-of-pocket expenses while donating services.

Cash Contributions

Cash contributions include donations made by cash, check, electronic funds transfer, online payment services, debit cards, credit cards, payroll deduction, or a transfer of a gift card that can be redeemed for cash. The documentation required includes:

• A bank record such as a canceled check or statement that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution
• A receipt or email from the organization that shows the organization's name and the amount and date of the contribution
• Payroll deduction records that show the organization's name and the amount and date of the contribution.

Non-Cash Contributions

• Less than $250: A receipt from the organization showing the organization's name, the date and location of the contribution, and a description of the property
• Between $250 and $500: "Contemporaneous written acknowledgment" of the contribution from the organization that includes a description of the property, whether the organization provided the donor with any goods or services as a result of the donation, and a description and good faith estimate of the value of any such goods or services provided to the donor
• Over $500 to $5,000: Contemporaneous written acknowledgment and taxpayers must include Form 8283 with their tax return
• Over $5,000: Contemporaneous written acknowledgment, a written appraisal of the property from a qualified appraiser, and Form 8283.
  

Out-of-Pocket Expenses

• A description of the services the taxpayer provided to the organization
• A statement of whether the organization gave any goods or services to the donor as a result of the contribution
• A description and good faith estimate of the value of any such goods or services.

Standard Deductions for 2023 and 2024

Taxpayers can choose to itemize their deductions, which is required when taking a charitable contribution deduction, or they take the standard deduction when filing their tax returns. The standard deductions for 2023 and 2024 are:

Taxpayers are usually better off claiming the standard deduction for their filing status if it's more than the total amount of all their itemized deductible expenses for the year. They'd otherwise be paying taxes on more income than they have to because they can't itemize and claim the standard deduction as well. It's an either/or decision.

The Bottom Line

Charitable contributions must be claimed as itemized deductions on Schedule A of IRS Form 1040. The limit on charitable cash contributions is 60% of the taxpayer's adjusted gross income for tax years 2023 and 2024. The IRS allows deductions for cash and non-cash donations based on annual rules and guidelines.

Correction—Dec. 28, 2023: This article has been edited to reflect the correct figures in a chart comparing 2023 and 2024 standard deductions for single taxpayers and married individuals filing separately.