A deduction lowers your taxable income, which in turn lowers the income taxes you pay. Everyone is entitled to the standard deduction amount (at least $25,900 in 2022 for married filing jointly; at least $12,950 single). If the total amount of your itemized deductions exceeds the standard amount, you will generally pay less income tax by itemizing.
If you are itemizing rather than taking the standard deduction, then your final adjusted gross income (AGI) is determined by the deductions you qualify for. There are two main types of deductions: above-the-line and below-the-line.
Above-the-line deductions can be taken regardless of whether you itemize, whereas below-the-line deductions are only available if you itemize. Charitable giving deductions are generally below-the-line deductions and are available if you itemize.
To claim a charitable tax deduction, the donation must be made to a qualified organization in good standing with the IRS. To ensure the organization is a qualified charity, look for the charity on the IRS’ Tax-Exempt Organization Search webpage or online resources like the Better Business Bureau’s Wise Giving Alliance or Charity Navigator.
When claiming a charitable tax deduction, you can’t receive personal benefit from the gift. For example, you can’t receive theater tickets or a table at a gala in exchange for donations to your favorite non-profit organization. Any personal benefit you do receive will reduce the amount of your tax deduction. So, if you gave $1,000 to your alma mater and received sports tickets valued at $400, your charitable tax deduction would be $600.
In addition to the amount donated, your adjusted gross income is also impacted by the type of asset donated. For example, traditional retirement accounts - such as 401(k)s or IRAs - generally require account owners to start taking taxable distributions at age 72. The amount that must be taken each year is based on age and the prior year's ending account value. If you do not want your mandatory IRA distribution to add to your income, you can transfer assets directly from your IRA to a qualified charity in what’s called a qualified charitable distribution (QCD) (if you meet certain requirements).
Although the donor of a QCD cannot take a deduction for the distribution, a QCD can offset your required minimum distribution and reduce your AGI. QCDs are an option regardless of whether you itemize your deductions. QCDs must go directly to a qualified charity, and other giving channels like a donor-advised fund (DAF), charitable trust or private foundation are not eligible to receive a QCD.
Summary of Deduction Limits
|Public charity||Public charity|
|Qualified charitable distributions (QCD)||The first $100,000 reduces AGI1||Not eligible|
|Cash||Full amount up to 60% of AGI||Full amount up to 30% of AGI|
|Long-term appreciated securities, including tangible personal property2||Fair market value up to 30% of AGI||Fair market value up to 20% of AGI|
|Ordinary-income property3||Limited to your basis||Limited to your basis|
Individuals and couples with taxable estates may benefit from charitable giving. Individuals with estates exceeding $12.06 million or married couples with estates exceeding $24.12 million (2022) are subject to the federal estate tax. Learn more about strategies to potentially lessen the taxes your estate will pay here.
If you plan to itemize your deductions, the IRS requires that you substantiate your donation. For amounts less than $250, records such as a cancelled check, bank statement or credit card receipt can suffice. For donations of $250 or more, you must obtain written acknowledgement of the donation from the charity (a donation receipt). All qualified charities should be able to provide you with this documentation and many send them automatically.