How are Charitable Contributions Taxed?

Charitable contributions, which are donations to and for use of non profit enterprises, are eligible for a charitable tax deduction are defined through 26 U.S.C. § 170(c) of Internal Revenue Code. Charitable contributions are only eligible for a donations tax deduction, unless however, the taxpayer chooses to itemize the tax deductions in the tax return under Schedule A (form 1040), instead of choosing a standard tax deduction process.

There are certain restrictions that apply to a charitable tax deduction, as donations to certain non profit organizations do not qualify, and only 50 percent of a taxpayer's adjusted gross income are included in a charitable tax deduction. For appreciated property, 30 percent of the taxpayer's adjusted gross income is considered the limit, also applying to certain types of organizations, such as fraternal societies and non profit cemeteries. A 20 percent limit is placed on gifts of capital gain property.

Money Contributions:

Money contributions that are given to charitable organizations for a donations tax deduction, include such donation methods as cash, check, credit card and payroll deductions. If a taxpayer has provided a monetary charitable contribution to an organization, especially in cash, a receipt will be required for the organization to claim a contribution to the taxpayer in order to receive a charitable tax deduction.

Supplemental contributions and expenses are also included in this category. Mileage incurred or gasoline used for the purpose of providing the contributions may be receive a charitable tax deducted, including any food or supplies given during volunteer work of any kind. Time spent in an effort to perform charity work, however, is not counted in a donations tax deduction.

Property Donations:

Donating property to a charity is eligible for a donations tax deduction and is usually calculated using the fair market value of the property itself. However, the value of the donated property should be subtracted by the amount of capital gain or income received if the taxpayer had sold the property for its fair market value.

For new items, the actual price paid to purchase the items may be used when calculating charitable tax deductions, though for used items, such as clothing and furniture, the fair market value is used. A fair market value of an item can be found in a variety of ways, such as by searching through pawn or thrift shops that resell used items which are similar to the ones donated. All items, especially household items should be in good to excellent condition before being qualified for a donations tax deduction. When donating property to a charitable organization, a copy of Form 1098-C is given to the taxpayer from the organization, which must be included with the taxpayer's tax return.

When a taxpayer has contributed property to a charity, if the value of the property exceeds $500, the taxpayer must fill out Tax Form 8283 along with the tax return. For non-cash items that value at $5,000 or more, the taxpayer must hire a qualified professional to appraise the property. Such items that value more than $500, such as a vehicle, will use the lower of all fair market values of the vehicle after it is donated to charity.

If the organization sells the car, however, the gross value of the proceeds are used to make the charity tax deduction. In any case, the fair market value may be used if the charitable organization uses the vehicle a great deal, makes improvements or modifications to the vehicle, or if the organization donates the vehicle according to its purpose as an organization.

Time and Services:

As mentioned above, the donation of a taxpayer's time and services to a charity does not qualify as a donations tax deduction. Even so, the expenses paid as a result of the time and services may be included.

Return Gifts:

In certain instances, a charitable contribution may be followed up with a return gift to the donating taxpayer from the organization that received the donation. Depending on the nature of the return gift, the value of the gift may be required to be subtracted from the total value of the donation. The return gift must be of a substantial value if it is subtracted from the total value of the donation. Small items that are of unsubstantial worth are purposely overlooked and are not included in the net value of the donation.

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