What is the Definition of Charitable Donation?

Hand placing a heart cut out into a donation boxIf you are one of the hundreds of millions of families who donate either time, talent, or treasure to a charitable organization throughout the year, you may be wondering what really counts as a charitable donation when it comes time to file your taxes.

So, exactly what IS the definition of a charitable donation? Read on to find out!

Charitable Donation Definition

A charitable donation is a gift made in the form of cash or property to a non-profit organization, with nothing given in return that is used to help the organization accomplish its goals and objectives.

The organization must have a religious, educational, literary, charitable, or scientific purpose. This means that organizations developed to further a political goal, lobby the government, or support a political candidate or party do not count. Organizations that benefit one person or party, in particular, do not count either, no matter how worthy the cause may be. And suppose your donation came in the form of tickets to a dinner or fundraiser. In that case, the value of the item, experience, or food that you got in return isn’t deductible due to the fact that you received something in exchange for your donation.

Charitable Donations and Taxes

When a charitable donation “counts,” you can deduct it from your federal income tax return. Still, there are several stipulations and requirements when it comes to whether or not a donation is considered to be deductible that filers need to keep in mind.

  • 501(c)(3): Only donations made to 501(C)(3) organizations are tax-deductible. Many worthy organizations still benefit from donations that serve our communities, but only those made to 501(C)(3)’s can be used for tax deduction purposes.
  • No individuals: Gifts to individuals don’t ever count, no matter how notable or worthy that individual may be.
  • Deduction limits: You can deduct up to 60% of your AGI (Adjusted Gross Income), but due to the CARES Act (2020) you can now deduct up to 100%
  • Expenses: Some expenses can be deducted as well, such as gas, etc., needed to volunteer to carry out a donation activity.
  • Appraisal requirements: If you are claiming that a non-cash donation that you made is worth over $5,000, you will need an appraisal.
  • Real property: Real property that is donated must be for fair market value.
  • Services: Services that are donated are treated a little differently, in that the amount that exceeds the fair market value of the item is the deductible portion for tax purposes.

In order to help you, your accountant, and the IRS fairly determine whether or not your donation meets their definition, make sure you keep records. Receipts and records should indicate who, what, when, and how much on all donations, regardless of what kind of donation it was.

The CARES Act also incentivizes individuals and those filing jointly to contribute to non-profit organizations, even if you don’t itemize on your tax return (up to $300, individual, $600 filing jointly). Considering that the standard deduction more often than not makes sense!

When you donate to charitable organizations, you want to feel like your money or items or property are making a difference. We want to see some tangible or spiritual change in the world we are living in, and so we give, and we give a great deal! The impact of your donations on the lives of those they reach is immeasurable, even when a tape measure might have been used to build it!

Sleep In Heavenly Peace is dedicated to giving children who have been impacted by disaster, hardship, neglect, or abuse a place to lay their heads at night, and you can help!

Learn more about our organization, who we help, and how we do here.