Tax-Deductible Donations: A Guide to Charitable Giving

In 2024, taxpayers donated nearly $592.50 billion to charities, an increase of 6.3% from 2023. And as anyone who’s worked at a nonprofit knows, most of those donations are made during the month of December. Donations made to charities by December 31 can be deducted on taxes, so near the end of the year, people start thinking about what donations are tax deductible and their charitable giving financial planning. 

It’s normal to ask how much you can donate for tax deduction — especially if you’re thinking about types of donations or wondering if a particular charity is legitimate. 

Here are some guidelines to help you plan your charitable giving, particularly at the end of the year. You can do good and help your tax return, too. And if you ever want to speak to a professional about your charitable giving, reach out to Farm Bureau anytime.

The Fundamentals of Charitable Giving

Before you donate, here are some questions to ask yourself. 

1. Is My Gift a Tax-Deductible Donation or Just a Gift?

There is a difference between a good deed and a charitable donation. Ornaments and wrapping paper that you purchase through a school fundraiser are not tax deductible, even if the funds that are being raised will go toward new band uniforms. The IRS only allows you to deduct contributions made to qualified nonprofit organizations. 

To determine if a donation is tax deductible, use the IRS Exempt Organizations Select Check tool.

2. Am I Eligible to Take a Tax Deduction for Charity?

To deduct charitable contributions on your taxes, you’ll need to itemize your deductions (using Form 1040, Schedule A). The IRS doesn’t allow taxpayers who do not itemize their deductions to claim donations on their taxes. This can be confusing, so the IRS created an online tool (Can I Deduct My Charitable Contributions?) that includes a series of questions concerning income, filing status and amount of donations to help you determine whether you can claim donations on your tax returns.

3. Do I Need Proof of the Tax-Deductible Donation?

The IRS requires taxpayers to have proof of their charitable contributions in order to claim tax deductions. The most you can claim as a donation to a charity without a receipt is $250. While it’s nice to have a receipt from the nonprofit with its name, date and amount of the contribution, the IRS will also accept canceled checks, bank records and credit card statements as proof of cash donations less than $250. To receive a deduction for a donation of more than $250, the IRS requires written documentation from the charity — so be sure to ask for a receipt and then keep it on file.

4. What Type of Donations Are Tax Deductible?

In addition to cash, you’re allowed to deduct non-cash charitable contributions such as cars, boats, clothing and household items. However, this deduction is also limited to taxpayers who are filing itemized returns. For contributions over $500, the IRS requires Form 8283 to be attached to your tax return. Special rules apply to non-cash contributions valued over $5,000, including a qualified appraisal (and the appraiser must fill out Section B of Form 8283).

5. Is This Charity Legitimate?

Giver beware! Scams pop up during the holidays to take advantage of your generous spirit as well as your quest for last-minute tax deductions. They use tactics like fake websites, similar names and frequent solicitation to impersonate real charities. 

So, arm yourself against scams and make sure your money goes where you want it to. The Federal Trade Commission maintains a list of charity scams on its website to help alert consumers. Avoid writing checks or sending cash to charities before first checking them out, and don’t succumb to any pressure to make a donation on the spot. Not only may your funds be misused, but contributions to fake charities are not tax deductible. 

6. How Much Can I Deduct for Charity Donations?

As long as you’re itemizing your deductions, you can typically deduct up to 50% of your adjusted gross income (AGI). In some cases, 20% and 30% limitations apply. So, it’s smart to talk to your financial planner before making a large donation, and make sure that it will have the effect you intend.

7. How Can I Plan for Taxes When Giving to Charity?

When it comes to planning your year-end giving, start by thinking about the current year’s income level and comparing it to what you expect to earn next year. In general, you’ll want to maximize your deductible expenses during years when you’re in a higher tax bracket.

So, if you anticipate having a higher income next year, you may want to wait until January to make your charitable contribution. Also, if a charitable gift may help your itemized deductions exceed the standard deduction in a certain year, plan for that. A tax professional can help you make the right decision for your circumstances.

Charitable Giving as a Family

Now that you know the fundamentals of charitable giving, consider building a tradition of philanthropy in your family. Making giving part of your family’s identity can help instill generosity and responsibility throughout the generations while providing financial benefits, too. 

Here are four ways to teach generosity and make a habit of giving.

1. Start a Tradition of Annual Family Giving

The holidays are a perfect time to establish an annual family giving plan. First, determine how much you'd like to donate as a family. Then, have family members research their favorite nonprofit organizations to present to the group. Together, you can then decide to choose one or a few charities, or distribute the total amount and have each member donate to the charity of choice.

2. Estate Planning

You may be able to reduce your estate tax burden through charitable giving. Options include will and trust bequests; charitable lead and charitable remainder trusts; and beneficiary designations for insurance policies and retirement plan accounts.

One thing to know: Trusts incur upfront costs and normally charge recurring administrative fees. Trusts are also subject to comprehensive tax rules and regulations. Consider consulting an experienced professional in estate planning as well as legal and tax professionals first. It’s also a good idea to make sure your selected charitable organization can use the gifts you plan to give. Your tax benefits can also be affected by the type of organization you choose. Check with your tax advisor for more details.

3. Donor-Advised Funds

With donor-advised funds, you can receive tax benefits now while making charitable gifts later. As the donor, your contributions to the host organization (the fund) are normally tax deductible, but the fund legally owns the assets. You or someone you designate then instructs how contributions are to be invested and grants are to be distributed.

The fund ultimately controls the assets, but your directions as the donor are normally followed. A tax advisor can help you learn if this is a wise choice for you.

4. Family Foundations

Private family foundations operate like donor-advised funds, but they are more complex in that they are separate legal entities under strict regulations. This arrangement for charitable giving is normally best for families with significant wealth. In addition to potential tax savings, the benefit for private family foundations is that your family has full control over how the assets are invested and which organizations receive grants.

If you’re wondering if this is a good choice for your family, talk to a tax advisor.

Maximize Your Impact

Whether you’re planning your own giving or building a legacy of philanthropy for your family, we recommend working with a professional to take the best first steps. Connect with a Farm Bureau financial advisor to discuss more information about your financial planning options and a conversation about the ways your money can make the most impact.