Helping others can provide greater meaning in our lives, and a Harvard Business School study even found that people are happier when they spend money on others.Disclosure 1The win-win? Charitable giving can have potential tax benefits, too. With careful planning, charitable donations can reduce your taxable income through deductions and—depending on the amount you give and your income—possibly get you into a lower tax bracket.
While caring for others and building better communities may be the main motives for giving, it can be helpful to understand how charitable giving can impact your personal finances. These guidelines can help you figure out whether your giving has tax implications.
Key takeaways:
- Charitable donations won’t affect your taxes unless you itemize your deductions and they exceed the standard deduction (for tax year 2023, that’s $13,850 if filing as an individual or $27,700 if filing jointly as a couple).
- Personal property—like clothes, art, or stocks—that you donate to qualified organizations can be deducted for their market value at the time of the donation.
- When donating money or property exceeding more than $250, you must get a receipt or written acknowledgment as proof of the donation before you can claim it as a tax deduction. Organizations are required to provide a receipt for donations of $75 or more.
1. Know how much you need to donate to get a tax break.
The first step is to determine if you’re eligible for tax benefits from your donations. Most tax filers claim the standard deduction, which lowers your tax bill by a certain amount. Instead of taking the standard deduction, you can choose to itemize your deductions—and charitable giving can be included in those deductions.
If you file your taxes as an individual, the value of all your itemized deductions would need to exceed $13,850 in order to beat the standard deduction for the 2023 tax year. For couples filing jointly, the standard deduction increases to $27,700.
Helping others can provide greater meaning in our lives, and a Harvard Business School study even found that people are happier when they spend money on others.Disclosure 2 The win-win? Charitable giving can have potential tax benefits, too. With careful planning, charitable donations can reduce your taxable income through deductions and—depending on the amount you give and your income—possibly get you into a lower tax bracket.
While caring for others and building better communities may be the main motives for giving, it can be helpful to understand how charitable giving can impact your personal finances. These guidelines can help you figure out whether your giving has tax implications.
2. Donate to qualified charity organizations.
Before making a contribution, find out if the charity or nonprofit organization is tax exempt. You can only deduct your donation on your federal taxes if the charity has a 501(c)(3) tax exempt status. Find out by checking the IRS exempt organization database. Also, by checking on the charity’s 501(c)(3) status, you can verify that it is a legitimate organization.
3. Know the types of donations you can deduct.
Beyond monetary donations via cash, credit, and checks, you can also claim tax deductions on donated goods and personal property like vehicles, jewelry, art—even stocks, patents, and real estate. Ensure that the value of noncash contributions aligns with their fair market value at the time you donated the item. When donating stocks, you can take a tax deduction on their fair market value on the date you made the donation. Intellectual property such as patents can also increase in value over time.
4. Know the deductible value (and the proof required) for each donation type and amount.
In general, donations are fully deductible for the fair market value of the amount you’re contributing, minus the fair market value of anything you may receive for the donation. But monetary donations exceeding $250 require a receipt or bank statement from the recipient before you can claim them as tax deductions.
Tangible items such as clothes or art can usually be deducted for the full amount of their current market value, though certain goods may require an expert appraisal. Receipts for tangible items you donate should also include a description of the items.
5. Keep all records of your charitable contributions.
Set up a place in your home or office to maintain proof of your donations. Hang onto your bank and credit card statements, receipts, letters of acknowledgment, and Form 8283s (for noncash contributions). The documents should include the name of the charity, the date of your contributions, and the amount or value contributed.
6. There are limits to how much you can deduct.
The rule of thumb is that you can deduct up to 60% of your adjusted gross income through charitable donations made to qualifying public charities and certain private foundations. For example, if your adjusted gross income is $80,000, your annual deduction limit is $48,000. However, depending on the type of donation and the type of organization you donate to, different tax deduction limit rules may apply. If your contribution exceeds the limits, it can be carried over and applied to a future tax year—but only within a five-year window and if your itemized deductions exceed the standard deduction for that tax year.
The Tax Cuts and Job Acts (TCJA) requires you to itemize your taxes and keep records of your contributions to claim your deductions, meaning you need to keep receipts for anything included in your tax filing.
7. Your charitable donations could help lower your tax rate.
Ranging from 10% to 37%, the federal tax rate you pay on income varies depending on how much you bring in each year. The federal tax rate is progressive—meaning your income is taxed in different tiers:
| 2023 Rate | Filing as single individual | Filing jointly as married couple |
|---|---|---|
| 10% | $11,000 or less | $0 to $22,000 |
| 12% | $11,000 to $44,725 | $22,000 to $89,450 |
| 22% | $44,725 to $95,375 | $89,450 to $190,750 |
| 24% | $95,375 to $182,100 | $190,750 to $364,200 |
| 32% | $182,100 to $231,250 | $364,200 to $462,500 |
| 35% | $231,250 to $578,125 | $462,500 to $693,750 |
| 37% | Over $578,125 | Over $693,750 |
Source: Internal Revenue Service
Let’s say hypothetically that you’re filing as a single individual, your annual income is $200,000, and you claim $50,000 in itemized deductions. Without those deductions, any income you make over $182,100 would be taxed at the 32% rate. But because your deductions lower your income to $150,000, the highest tax rate you’d pay on your income is 24%.
8. When in doubt, work with a tax professional.
Get professional advice on your charitable giving plan if you think it may have tax implications. Consult with a tax advisor about whether your philanthropy could benefit you on your personal taxes and what kind of documentation you need.
Next steps:
- If you think itemizing deductions on your next tax return could help you save on your taxes, try crunching the numbers to see if all your deductions—including those for charitable donations—could add up to more than the standard deduction.
- Collect receipts and proper documentation for any future donations so you can take advantage of the potential deductions. (Friendly reminder: Deductions from charitable giving can be carried over beyond the tax year in which you made the donation!)
- If your tax situation feels complicated, connect with a trusted financial planner, CPA, or wealth advisor to determine the best resources and course of action for you.