This article was fact-checked and verified by Katherine Varraveto, CPA. However, this article does not constitute tax advice and was written for educational purposes. For actual tax advice please consult your own CPA.
- How much charity is tax deductible?
- What is considered a charitable donation?
- What is the maximum tax deduction?
- What is the maximum charitable deduction in 2020 without a receipt?
- Is the $300 charitable deduction per person?
- How much do I need to give to charity in order to impact my tax return?
- How much can I claim for charitable donations without getting audited?
- 5 Things to remember about tax deductible donations
- How can Spiral help you with your charitable goals?
- Key takeaways
Many of us want to use our resources to help non-profit organizations. Is there a limit on the total charitable donations each person can claim as a tax deduction? How should I decide if and how much should I donate? How much charity is tax deductible?
Currently, there is not a limit on qualified donations made to public charities. In prior years, limits can vary from 30% to 60% of your adjusted gross income.
We don’t know what policies the next few years will bring, but it is a good time to get the most out of your charitable giving and maximize your tax benefits.
Before we get started, what is a tax deduction?
According to Bankrate, “A tax deduction reduces the amount of income that is subject to taxation by federal and state governments. All federal income taxpayers have the right to choose either the standard deduction or to itemize a range of deductions, thereby lowering their taxable income.”
If an item is considered “tax-deductible,” it means that it can be taken as a tax deduction. Okay, now let’s talk deduction limits.
How much charity is tax deductible?
Note: These are limits for 2020 and 2021 under COVID-era policies. These numbers could change in 2022. Please check with your tax advisor before making decisions on your plans for deductions.
According to the Internal Revenue Service (IRS), “In most cases, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60 percent) of the taxpayer’s adjusted gross income (AGI).
Qualified cash contributions, created by the CARES Act of 2020, are not subject to this limitation.
Individuals may deduct qualified cash contributions of up to 100 percent of their adjusted gross income. Please note that currently qualified contributions are only authorized for 2020 and 2021. Contributions that exceed the limitations can be carried over to the next tax year.
To qualify for deduction, the contribution must be:
- a cash contribution;
- made to a qualifying organization
- made during the calendar year 2020 or 2021
In short, “When you make a charitable contribution of cash to a qualifying public charity, in 2020 or 2021, under the Consolidated Appropriations Act, you can deduct up to 100% of your adjusted gross income,” according to Fidelity Charitable.
What is considered a charitable donation?
According to the IRS, a charitable donation is “a donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting to get, anything of equal value.”
Practically, this could be a monetary donation or even a physical item. An example of a physical item would be donating your used car to an organization like Habitat for Humanity.
What is the maximum tax deduction?
Charitable giving isn’t the only way you can get a tax deduction! Even with the 50% charitable donation limit, you cannot go above having 60% of your AGI itemized in deductions.
This means that any other deductions you have plus your charitable donations, can’t exceed 60% of your reported income.
So, if you, in our metaphorical example, made $50,000 and donated $25,000 to your local public charity and had write-offs (such as mortgage interest, state and local tax, and healthcare expenses) totaling over $10,000, you’d only be able to claim a total of $30,000 in itemized deductions. See this article from the IRS for more information.
You may not even need to itemize your tax deductions because the IRS gives you the opportunity to claim a standard deduction.
From the IRS: “The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.”
In comparison, an itemized deduction is a list of eligible deductions that you, as the taxpayer, can list out on your tax return. If you believe you have more than the standard deduction, it would make more sense to itemize.
According to Investopedia, a standard deduction, “is the portion of income not subject to tax that can be used to reduce your tax bill.
The IRS allows you to take the standard deduction if you do not itemize your deductions using Schedule A of Form 1040 to calculate taxable income.”
This will change for 2021:
What is the maximum charitable deduction in 2020 without a receipt?
According to NerdWallet, “For the 2020 tax year, there’s a twist: you can deduct up to $300 of cash donations without having to itemize. This is called an “above the line” deduction.
In 2021, the deduction rises to $300 per person rather than per tax return, meaning a married couple filing jointly could deduct up to $600 of donations without having to itemize.”
This means that you can, regardless of whether you itemize or take the standard deduction, also claim the $300 in cash donations.
Is the $300 charitable deduction per person?
Yes, $300 is per person, meaning, if married and filing jointly, you could claim up to $600 of cash donations, even if also taking the standard deduction, without having to itemize the giving.
How much do I need to give to charity in order to impact my tax return?
Of course, you can’t put a true financial value on all of the reasons to make a charitable donation but in order for your donations to impact your tax return, you’d have to have more donations and other deductions than the standard deduction outlined above (so $12,550 for single filers and $25,100 for married, filing jointly taxpayers in 2021).
Going back to our prior example, if you are filing a single tax return, your total deductions (including charitable and all others), would need to total more than the $12,400 you can claim as a standard deduction.
If you have only donated $400 and are able to claim just $3,500 in mortgage interest and other deductions, for example, you would be better off taking the offered $12,400 in standard deduction instead of itemizing your charitable giving.
How much can I claim for charitable donations without getting audited?
There is no magic number here. The IRS can choose to audit you at any time, for any reason. However, according to The Nest, the IRS is more likely to flag charitable giving that goes above 3% of your AGI.
“The IRS knows how much the average taxpayer in your income range donates, and if you want to avoid IRS red flags for charitable donations, it’s a good idea to stay within that charitable donations limit range, or the IRS may want to take a closer look at your tax return.
Say your adjusted gross income is $100,000. The average donation for that income level is about $3,620, or around 3 percent.
So if you donate three times that much, make sure you keep any charitable donation receipts, because the IRS may want to check your return.
If you are within that 3-percent range, you most likely can go ahead and claim charitable deductions without a receipt. Still, keeping receipts always makes sense in case the IRS flags your return for another reason.
You are legally allowed to claim charitable deductions for up to 60 percent of your adjusted gross income, but again, if you go much above that 3 percent rate, the IRS will likely audit your return.”
5 Things to remember about tax deductible donations
- Calculate whether or not it will make sense to itemize your deductions.
- If you were to itemize all of your deductions, would it be less than the standard deduction offered based on your filing status? If so, take the standard deduction. Less paperwork, too!
- If you will be itemizing, remember this helpful checklist on how to claim the deductions:
- Make sure the non-profit organization is a 501(c)(3) public charity or private foundation.
- Keep a record of the contribution (usually the tax receipt from the charity).
- If it’s a non-cash donation, in some instances you must obtain a qualified appraisal to substantiate the value of the deduction you’re claiming. You may even need the receipts from the original purchase.
- With your paperwork ready, itemize your deductions and file your tax return (Fidelity).
- If you don’t have cash, you can donate items!
- Instead of throwing away your valuables, see if a local organization will take them. Make sure you get a receipt from them so you can write it off.
- Use Spiral’s new ethical banking¹ service to match up to $150 of your donations per year³.
- Make your money go further in helping those in need.
- Charitable giving is not only about the deduction.
And when it comes to charitable donations, there is also no magic number for how much you should give.
It comes down to your own savings and budget goals. Find charitable organizations whose mission you support. Here’s a fun list of reputable, amazing charities started by celebrities!
How can Spiral help you with your charitable goals?
Spiral is the pioneer of the Impact-as-a-Service™ platform that helps banks and financial institutions easily embed sustainability, social impact, ESG, and CSR into their businesses. Their mission is to empower 10,000+ U.S. financial institutions and millions of people to contribute to a better world.
So, how much charity is tax deductible? Right now, you can donate 100% of your AGI to qualified, public charities. That might not always be the case! However, if you’re like the majority of Americans, you likely will need to weigh whether or not you’ll need to itemize your deductions or take the standard deduction.
Finally, remember what is charity and that giving is not just about your wallet. It’s good for your community, your well-being, and the well-being of all of us.