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What Is a Charitable Contributions Deduction?

B. Miller
B. Miller

A charitable contributions deduction may be taken in some cases on an income tax return, if the individual has made qualified charitable donations throughout the fiscal year. Taking deductions on an tax return effectively reduces the taxable income, thereby reducing the amount of taxes that must be paid on this money at the end of the year. A charitable contributions deduction may only be taken if the tax payer is eligible to itemize deductions. He or she also must possess records of the contribution, whether it was a cash donation or a donated item, as well as records that show the appraised fair market value of any donated items.

Many people who are able to itemize on their tax return use the charitable contributions deduction as a way to save money on their taxes while giving something back to help others. Any type of deduction can be beneficial on yearly taxes because it reduces the amount of an individual's income that is able to be taxed. If taxable income is less, then taxes owed will be less. Those who take the standard deduction, however -- meaning their qualified expenses and contributions, when added, are equal to or less than the standard deduction -- may not deduct charitable contributions.

Man climbing a rope
Man climbing a rope

There are some other requirements that must be met when taking a charitable contributions deduction. The first is that the organization to which the funds or items were donated must be a qualified nonprofit organization, meaning they are tax-exempt. In nearly every case, if an organization is not a tax-exempt non-profit, donations made cannot be included in any charitable contributions deduction. Ascertaining an organization's tax-exempt status can usually be done with a simple phone call to the organization to check.

In addition, it is necessary to actually donate money or goods to the organization in order to deduct it. Simply making a pledge to donate does not qualify for a charitable contributions deduction. It is also very important to keep records of donations, such as a receipt or a canceled check. If the item donated was of significant value, it is a good idea to get a market value appraisal ahead of time to use as proof, just in case. If an individual's tax return is audited, it will be necessary to produce all records of the charitable contributions that were claimed on the tax return, so it's a good idea to be prepared.

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