'Tis the Season for Charitable Donations and Tax Deductions

As Seen in Triangle Business Journal

As we approach the year-end holiday season, many individuals consider providing gifts to charity both to fulfill philanthropic objectives as well as garner tax deductions. This article is a timely overview of the myriad Federal tax rules that apply to individual taxpayers seeking to obtain charitable contribution deductions.

The Federal tax law per Internal Revenue Code §170 dictates that Individuals may only receive an income tax deduction for contributions made to a “qualified” public charity. Per Internal Revenue Code (“IRC”) Sec 501(c)(3) a “qualified” organization includes those granted a Determination Letter issued by the Internal Revenue Service (“IRS”) signifying they are a “public charity” or a “private foundation.” A charitable contribution deduction is not available for any gifts made by one individual directly to another individual, business, or non-qualified organization, regardless of the philanthropic intent. Donors should always verify the tax-exempt status of the donee charitable organization, whether directly with the organization or by accessing the online database maintained by the IRS.

Charitable gifts may be made in cash or property. A charitable deduction may only be claimed in the tax year in which it is made, therefore proper recordkeeping such as the following should be maintained:

• For any cash donation, a record of the cancelled check, wire transfer, or cash donation receipt with the date and dollar amount indicated.
• When a noncash charitable deduction claimed has a value > $500, taxpayers must complete Form 8283, Noncash Charitable Contributions, to include with the filing of Form 1040. For donated items with a fair market value > $5,000, a certified appraisal must be performed by a qualified appraiser as precedent to completing Form 8283 and a signature obtained by the donee organization acknowledging receipt. For larger noncash donations, the certified appraisal report is required to be attached to Form 8283.
• Donations of publicly traded stock do not require a qualified appraisal, but Form 8283 does require reporting the fair value as listed on a recognized stock exchange.
• For vehicle donations, a deduction is limited to the lesser of appraised value or the sales proceeds received upon resale of the vehicle by the charity. The donor should obtain a written acknowledgement from the donee organization, typically via Form 1098-C which will list the pertinent fair value and date information. In addition, many organizations rely on third party consultants who can handle logistics of transfer and sale along with issuance of the Form 1098-C.

Individuals may obtain a charitable contribution deduction on Form 1040 only if Itemized Deductions are claimed on Schedule A. Beginning in 2026, a law change now allows a $2,000 deduction for couples who file jointly and $1,000 for single filers.

In addition, a taxpayer’s annual amount of charitable deduction is limited to a certain percentage range of adjusted gross income (“AGI”). Contributions to public charities permit a taxpayer deduction capped at 60% of AGI if made in cash, 30% of AGI for most noncash donations. Contributions to private foundations are capped at 30% of AGI for cash and 20% for noncash. A law change in 2026 also sets a minimum floor for all taxpayers mandating that contributions will initially become deductible only upon exceeding .5% of AGI.

Fundraising events hosted by charitable organizations are a holiday tradition. Under federal tax law, the deduction an individual may claim for attendance at a charitable event is limited by the “quid pro quo” rules. The host charity must notify donors the value that is received in exchange for the attendance fee, which then permits the donor to calculate the deduction amount limited to the event ticket price paid > value received. Similarly, the purchase price of any raffle tickets or silent auction bids paid out do not provide any tax deduction since the donor is considered to have received “quid pro quo” equal to the amounts paid. Under current federal tax law, there are many unique charitable contribution tax planning strategies that taxpayers may avail themselves. These include the use of charitable lead trusts, charitable remainder trusts, donor advised fund contributions, and even creation of family foundations. Tax and legal professionals should be consulted before executing any charitable planning strategy.

The rules that apply to the tax deductibility of charitable gifting can be complex and administratively challenging. Citrin Cooperman’s professionals are well-versed in spreading holiday cheer when advising clients on the charitable deduction rules. Connect with Anthony Pandiscia to discuss further.