Charitable contribution deduction

What is a charitable contribution deduction?

A charitable contribution deduction is an itemized deduction for contributions of cash or property to a qualified tax-exempt organization.

Generally, taxpayers may deduct up to 50 percent of their adjusted gross income, but 20 percent and 30 percent limitations apply in some cases, depending on the type of charity it is.

Deeper definition

While charitable contributions are popular deductions at tax time, they must meet strict guidelines for IRS approval.

The biggest determining factor on whether a person can take a deduction is what kind of charity it is. Organizations that fall under 170(c) of the tax code include churches, war veterans foundations, nonprofit volunteer fire companies and nonprofit cemetery companies, among others.

To be sure, foreign-based groups may not be eligible, and the decision to deduct ultimately will be determined by their base of operations. If they are domestically formed organizations but carry on activities in foreign countries, they are an approved charitable organization under the IRS code.

Assuming the person contributed to an approved organization, that person may deduct up to 50 percent of his or her adjusted gross income.

However, contributions to certain private foundations, veterans groups, fraternal societies and cemetery organizations are limited to 30 percent of the person’s adjusted gross income. Still other contributions are limited to 20 percent.

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Charitable contribution deduction example

During the current tax year, Bernard made $1,000 donations to four approved charities. With an adjusted gross income of $35,000, he could lower his taxable income to $31,000, if he itemized, since the total doesn’t reach 50 percent of his income.

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