Did you know that there are limits on the total charitable contributions you can deduct on your tax return? While most taxpayers are aware that only donations to eligible charities qualify as tax deductions, many are not aware that there are caps on the total deduction you can take. Find out more about this little-known tax rule below.
In most cases, the eligible deduction for donations to qualified charitable organizations is capped at 50% of your adjusted gross income (AGI). So, for example, if your AGI is $50,000 you cannot deduct more than $25,000 in charitable contributions on your tax return. However, with donations to private foundations, domestic fraternal societies (lodges), and several other types of charities, your deduction is limited to 30% of your adjusted gross income. In those cases, with an AGI of $50,000, your deduction for gifts to these types of charities would be capped at $15,000. If you’re not sure sure which group a charitable organization falls into, you can ask about their deductibility status code, an IRS designation that categorizes charities and indicates the deduction cap.
Calculating the allowable tax deduction can become particularly confusing when you’ve made charitable donations to some organizations with the 50% cap and some with the 30% cap. To make sure your tax return is prepared correctly, we recommend enlisting a tax help professional in these cases. Taxation Solutions, Inc. can provide the expert guidance you need to ensure your taxes are filed completely and accurately. Learn more when you call today!