A charitable deduction is a provision in the U.S. tax code that allows taxpayers to reduce their taxable income by the amount of certain charitable contributions made to qualified organizations. This deduction is intended to encourage philanthropy and support for public charities.
To qualify for a charitable deduction, contributions must be made to organizations that are recognized by the Internal Revenue Service (IRS) as tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Examples of qualifying organizations include educational institutions, religious organizations, and nonprofit charities.
The amount that can be deducted depends on various factors, including the type of contribution made. Cash donations can be deducted up to 60% of a taxpayer’s adjusted gross income (AGI), while contributions of appreciated assets, such as stocks or real estate, may be limited to 30% of AGI. If the total amount of charitable contributions exceeds these limits, the excess can be carried forward to future tax years for deduction.
It is important for taxpayers to maintain proper documentation, such as receipts or written acknowledgments from the charitable organization, to substantiate their charitable deductions when filing their tax returns. Failing to provide adequate proof may result in the disallowance of the deduction by the IRS.
In Houston and surrounding areas in Texas, many local charities and nonprofit organizations qualify for charitable deductions, allowing residents to support community initiatives while benefiting from potential tax savings. Examples include local food banks, health services, and educational programs.
« Back to Glossary Index