While small in-kind donations such as clothing and household items don’t usually offer significant tax benefits, big-ticket items may reduce your tax bill. Donating vehicles, large household appliances, and even stocks can decrease your tax liability.
Charitable gifts that can reduce your tax burden
If you itemize tax deductions, some charitable gifts can help reduce your tax burden. While small in-kind donations, such as clothing and household items, don’t usually offer significant tax benefits, big-ticket items may reduce your tax bill. Donating vehicles, large household appliances, and even stocks can decrease your tax liability — but you need to follow proper IRS procedures.
The proper IRS procedures depend on your donation type and size. If the amount of your noncash charitable donations exceeds $500, you need to complete and include Form 8283 with your return. If any asset you donate is worth more than $5,000 in value, you generally need to include a qualified appraisal and other documentation along with your tax return.
Tip: The appraisal must take place less than 60 days before the item is donated.
Some charitable organizations also accept stock donations, which may help you decrease your capital gains tax liability.
If you plan to donate a car, boat, or airplane that you claim is worth more than $500, the process is slightly different. You must fill out Form 1098-C and outline whether the vehicle will be sold as is, improved then sold, or offered to a needy individual significantly below the fair market value of the vehicle. If you donate through a nonprofit organization that sells the vehicle for more than $500, the organization should provide you with documentation outlining the following:
- The vehicle identification number
- Your name and tax ID number
- The date it the vehicle was sold
- The gross sale proceeds
- A statement that the organization provided no tangible goods or services in exchange for the vehicle
Tip: Your deduction can’t exceed the proceeds the charity made on the sale.
Amount you can deduct for your charitable donation
The amount you can deduct related to charitable contributions directly correlates to your adjusted gross income. These limitations relate to both the type of contribution you are making (i.e. cash, property, or stock) and the type of organization to which you are donating (i.e. public or private), and generally range from 20 percent to 50 percent of your income.
Before you make and finalize your charitable donations, ensure they are qualified. The IRS makes this process easy with its online exempt organization select check tool.
Tax reform and charitable deductions
Taking a charitable tax deduction requires you to itemize your tax deductions. Because the Tax Cut and Jobs Act significantly increased the standard deduction, itemizing may not increase your potential deduction, even accounting for charitable donations.
To counteract this, you might consider bundling all of your major charitable donations into one year, and itemizing for that year. Doing so might increase your deductions beyond the standard.
A tax professional can help you assess how to maximize your charitable contributions from a tax perspective.
Get more help filing your taxes at the Regions Tax Center.
