What are charitable donations?
Charitable donations are gifts given to nonprofit organizations. Charitable donations can take many forms. Common gifts include:
- Real Estate
- Other Assets or Services
Most charitable donations are tax deductible. In order to qualify for a tax deduction the nonprofit organization has to be classified with the IRS as 501(c)(3). You can double check that the organization you are donating to is tax deductible through the IRS Exempt Organizations Select Check.
It’s important to get a receipt from the organization that you donate to in order to claim it on your taxes.
One aspect of charity that is not tax deductible is volunteering. The IRS does not allow you to deduct hours you spent volunteering because it is too hard to track. However, you can deduct traveling expenses like gas, oil, air or bus fair. You must be able to provide receipts in order to deduct it.
Businesses and individuals can make charitable donations. Both can claim charitable donations on their taxes.
Charitable donations scenario
Mike Johnson is a realtor. He is a partner at Sunrise Realty. Every year Mike makes charitable donations through his business and on his own.
individually Mike donates to:
- His church
- Make A Wish Foundation
His business donates to the following organizations:
- Vetrans Association
- Boys and Girls Club
- A local Children’s Hospital
- The local fire station
- Sponsor a local t-ball team
On Mike’s personal taxes he can claim all of the donations as charitable donations because all of the organizations are classified as 501(c)(3) with the IRS.
On Sunrise Realty’s taxes Mike and the other partners can claim, all except sponsoring the t-ball team as tax deductible. Most sport teams don’t qualify for tax deductions; however, some may be registered, so it’s important to look at each team individually. Because Mike’s local team doesn’t qualify as a charitable organization, he is able to write it off as a marketing expense.