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TAX TIP TUESDAY: Charitable contributions

H&R Block PresentsCharitable Contributions

With the recent disasters and the health pandemic, many people are looking for ways to help those in need. Contributing to a qualified charitable organization entitles you to a deduction on your income tax return. Previously in order to deduct charitable contributions you had to be able to itemize your deductions on Sch A of your tax return. However, for 2020 and 2021 a charitable contribution deduction is allowed for cash donations even if you don’t itemize. The deduction for non-itemizers for 2020 was $300 per return. The deduction for 2021 is $600 for a return using the Married Filing Jointly filing status and $300 for other filing statuses. Of course, higher amounts for qualified charitable contributions may still be deducted as itemized deductions.

What is a Qualified Charitable Organization? To be a deductible contribution, the donation must be made to a qualified nonprofit religious, educational, scientific, or charitable organization. These are typically called 501(c)(3) organizations. Almost all churches, schools, and hospitals are qualified organizations. Additionally, well known organizations like United Way, Red Cross, American Cancer Society, Disabled American Veterans, Wounded Warriors, Salvation Army, Goodwill, and many others are qualified. If you are planning to make a tax deductible contribution to other organizations, you should first verify their nonprofit status. Donations made directly to individuals are not tax deductible.

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What is a Qualified Contribution? Contributions may be made in cash (cash, check, automatic bank withdrawals, credit card), or non-cash (donations of property). You may also make tax deductible contributions by volunteering at a qualified organization. The amount of your contribution is the actual out-of-pocket donation made. For cash contributions, this is the amount of contribution less the value of any item or service received. For non-cash contributions, the amount of your contribution is the fair market value (FMV) of the item donated. Contributions made as a volunteer are limited to the amount spent for items provided including mileage at a rate of 14 cents per mile. The volunteer’s time and expertise are not considered in determining the amount of contribution.

What records are needed to support tax deductible contributions? For individual cash contributions of less than $250, IRS accepts a receipt, cancelled check, bank statement, or credit card statement showing the organization name, date of contribution, and amount of contribution. If you make a one-time contribution of $250 or more, IRS requires a statement from the organization containing the name, date, amount, and a statement that no goods or services were received or the amount of value received. Non-cash contributions require a receipt with all the above information including a description of what was donated. The fair market value of items should also be listed in order to claim the deduction. Fair Market Value (FMV) is the amount the item could be expected to be sold for on the date of the donation. To determine FMV for items such as clothing, furniture, and household goods you may use the charts provided on the Salvation Army or Goodwill websites. For donations of items valued at $5,000 or more, an appraisal is usually required.

 If you have questions about Charitable Contributions and tax deductions and would like help from the Tax Professionals at H&R Block, please call your local H&R Block office. In Manchester TN call 931-728-9462. H&R Block Has Your Back!

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