There aren't too many people who donate very large chunks of their income to charity every year, but if you do, there are limits on what you can deduct. Most public charities are also known as 50 percent organizations, which means that your deductions from donations to those charities are limited to 50 percent of your adjusted gross income for that year. In other words, if you make $100,000 in a certain year and donate $60,000 of it to a qualified public charity, you'll only be able to deduct $50,000 of that. Other organizations -- usually private charities, veterans groups, fraternal organizations and private family foundations -- have 30 percent limits. To further complicate matters, if a 30 percent organization happens to show capital gains, then you can deduct only 20 percent of your income.
There are additional limits — too involved to fully explain here — that depend on what type of donation you're making. If you happen to donate long-term capital gains to a charity, your deduction is limited to 30 percent of your income, even if you've given to a 50 percent organization. That percentage goes down to 20 if the long-term gains are donated to a 30 percent organization. (Again, we're talking about a very small percentage of the population who will have this issue.)
But never fear, generous people. You will eventually reap the benefits of donating more than the limit -- it just won't be all in one year. If you donate $60,000 of your $100,000 income to a 50 percent organization, you can write off $50,000 that year. The remaining $10,000 can be rolled over and written off gradually over the next five years.
If you'd like to delve deeper into the world of charitable tax deductions, check out the links below.
Author's Note: How Charitable Tax Deductions Work
Kudos to anyone who does their taxes all by themselves, but researching articles like this makes me all the more happy with my decision, made many years ago, to hire an accountant.
- Bell, Kay. "Get a tax deduction for charitable giving." Bankrate. (Nov. 12, 2014) http://www.bankrate.com/finance/taxes/get-a-tax-deduction-for-charitable-giving-1.aspx
- Internal Revenue Service. "Eight Tips for Deducting Charitable Contributions." March 22, 2011. (Nov. 11, 2014) http://www.irs.gov/uac/Eight-Tips-for-Deducting-Charitable-Contributions
- Internal Revenue Service. "Form 8283: Noncash Charitable Contributions." (Nov. 11, 2014) http://www.irs.gov/pub/irs-pdf/f8283.pdf
- Internal Revenue Service. "Instructions for Form 8283." December 2013. (Nov. 11, 2014) http://www.irs.gov/pub/irs-pdf/i8283.pdf
- Internal Revenue Service. "Publication 526: Charitable Contributions." (Nov. 11, 2014) http://www.irs.gov/pub/irs-pdf/p526.pdf
- Internal Revenue Service. "Publication 561: Determining the Value of Donated Property." (Nov. 11, 2014) http://www.irs.gov/pub/irs-pdf/p561.pdf
- T. Rowe Price. "Understanding IRS Limits on Charitable Gifts." (Nov. 12, 2014) http://www.programforgiving.org/charitable/pages/understandingIRSLimits.jsp