One of the most popular tax deductions is charitable donations. The federal government allows taxpayers to donate both money and non-cash items to charities, tax-free. However, depending on the charity organization that you chose to donate to, various deduction rules will apply.

Qualifying Tax Exempt Charities

For the donations to be tax-deductible, they will need to be made to a qualifying tax-exempt charity. Charity organizations are provided with this tax-exempt status after meeting various IRS requirements. The IRS has a list of all the qualified charities that you can donate to so as to qualify for the tax deduction. The list is adjusted every now and then to remove charities that lose their non-exempt status. Timur Tillyaev Therefore, you will need to check the IRS list every time you make donations so as to ensure that the organization you are donating to is qualified to warrant you the tax relief.

Caps on Tax-Deductible Donations

There is a cap to the amount of donations that you can make tax-free. The cap is set as a percentage of your Adjusted Gross Income (AGI). Different percentages are set for different organizations with the cap ranging between 30% and 50% of one’s AGI. The IRS has categorized charities into deductibility codes and each code has a different donation cap. These codes are provided below:

Code 1 – This category is for umbrella organizations that have other subsidiary charities. The Code 1 charities will normally not receive donations as the donations are channeled to the subsidiary charities.
Code 2 – This charity code is for the fraternal lodges. Donations to these institutions are tax-deductible as long as the donations are used for charity. The cap to for this code is 30% of one’s AGI.
Code 3 – This category is for privately owned foundations and one can donate up to 50% of their income tax-free.
Code 4 – This code also includes private foundations but these foundations have not met certain qualifications. The cap for tax-free donations to these charities is 30% of your AGI.
Code 5 – This category if for organizations that have either lost their tax exempt status or for those that have not yet applied for the status from the IRS. Therefore, donations to organizations under code 5 are not tax deductible.
Code 6 – This category is for organizations that have the rule 170(c) status. These organizations, which are normally private foundations, are not necessarily charities. Their cap for tax-exempt donations is 30% of the AGI.
Code 7 – This category is for charities whose charity work is consumed by the government in one way or another. When donations are given to these charities (and such donations are used for a government related project) the donation will have a cap of 50% of one’s AGI.
Code 8 – This category is for charities with foreign addresses. There is no tax relief for donations made to these organizations.

For you to claim a tax deduction against qualifying donations under the above rules, you must itemize your deductions on your tax return. You also need to remove the value of any items you receive in exchange for the donation. Besides this, you will also need to keep proper records of the acknowledgment for the donations, as this will be your support documentation when making your deduction claims.