What Are Charitable Deduction Limits?

K. Kinsella

In many countries, individuals and organizations are able to claim tax write-offs for charitable deductions. To prevent taxpayers from avoiding paying income tax altogether, tax authorities typically impose charitable deduction limits which cap these write-offs. Charitable deduction limits are designed to limit the annual rather than the lifetime tax-deductible contributions a taxpayer can make.

The IRS allows deductions for charitable giving, but it limits the amount.
The IRS allows deductions for charitable giving, but it limits the amount.

While donations can take many forms, tax agencies normally only allow people and entities to claim tax deductions for donations that are made to registered charities rather than donations that are made to individuals or unregistered groups. In many instances, these contributions take the form of cash donations in which case the party receiving the money must provide the donor with a receipt. At the end of the fiscal year, taxpayers may be asked to turn in copies of these charitable receipts along with their tax returns. In other instances, the tax authorities allow donors to itemize donations on a tax form but do not actually require copies of the receipts or any other documentary evidence to prove that sums of money were given to the charities in question.

It may be beneficial to donate a car rather than junking it.
It may be beneficial to donate a car rather than junking it.

Nothing prevents a taxpayer from making donations that exceed the charitable deduction limits but donors who exceed the limit must pay ordinary income tax on the sums of money they gave to charity that were above the annual cap. In some nations, married people and those involved in civil unions can file their taxes jointly in which case these individuals may be able to claim the maximum deduction for a couple even if only one of the duo actually donated money to charity. People sometimes wait until the end of the year before giving money to charity so that they calculate precisely how much they can donate without exceeding charitable deduction limits.

Aside from giving cash to charities, many people also donate valuables such as jewelry, cars and even houses to non-profit organizations. Laws in some countries require donors to pay for a licensed appraiser to determine the value of such items but in other places, taxpayers are able to estimate the value of the property that they donate. Some people understate the value of the property that they give to these groups so that their total donations remain below the charitable deduction limits. Conversely, other people exaggerate the value of donated items to claim the maximum tax deduction. Typically, tax authority representatives have the authority to audit individuals who claim large tax write-offs and people who fraudulently claim tax deductions often have to pay hefty penalties.

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