How Does the Charitable Giving Tax Deduction Work?

Americans donate hundreds of billions annually to support causes that improve communities and change lives—aiming for overall societal improvement and optimization of tax plans. Beyond the inherent satisfaction of making a difference, the tax code provides significant financial incentives for those looking to make a difference, which makes giving back even more rewarding. 

The charitable giving tax deduction is one of the most significant tax benefits available to donors and is at the core of essentially all tax strategies for charitable giving—yet many Americans don’t fully understand how to maximize its potential within their overall financial strategy.

Greater Houston Community Foundation strives to make charitable contributions easy and tax-efficient. Whether you already have a donor advised fund (DAF) or are thinking about making a charitable contribution in 2025, keep reading to find out how charitable giving tax deductions work, or call the Foundation today at 713-333-2210 to incorporate charitable giving into your larger tax plan. 

Key Insights

• Charitable contributions to qualifying 501(c)(3) organizations can significantly reduce taxable income.
• Donation limits vary by contribution type, with cash donations to public charities generally capped at 60% of AGI, and lower limits for appreciated assets and contributions to private foundations.
• The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, creating uncertainty in the future charitable giving landscape.
• Non-itemizers can still benefit from strategic approaches like bunching donations across tax years or using qualified charitable distributions.
• Working with financial, tax, estate, and philanthropic advisors can help optimize the impact of your charitable giving and its tax efficiency within your comprehensive financial plan.

Table of Contents

• The importance of giving strategically
• Do you get a tax deduction for donating to charity?
• What qualifies charitable organizations?
• What types of donations qualify?
• Limits on deductions 
• Asset-specific rules for contributions
• How working with advisors can help
• Standard deduction vs. itemized deduction
• A high-level view of the current tax landscape
• When can non-itemizers still reap tax benefits?
• Partner with the Community Foundation 

The importance of giving strategically

Charitable donations fuel the essential work of countless nonprofit organizations addressing critical needs in healthcare, education, poverty alleviation, and more—but beyond that, charitable giving also represents an important financial and tax planning strategy for high-net-worth individuals. 

In 2023, Americans donated over $500 billion to charitable causes, demonstrating the continuing commitment to philanthropy and the financial value of making donations despite economic challenges. 

By approaching charitable giving with a strategic mindset, individuals can enhance their philanthropic impact and align their contributions with their financial goals and values. Donors can create a lasting legacy through diverse giving vehicles, engagement with nonprofits, and utilization of tax benefits. Ultimately, strategic philanthropy can transform the charitable landscape, ensuring that donations make the greatest possible difference in the communities they touch.

Do you get a tax deduction for donating to charity?

Tax deductions decrease the portion of your income that is taxable, unlike tax credits, which directly reduce the tax owed dollar-for-dollar. When you make a qualifying charitable contribution, you can deduct the value of that donation from your taxable income, effectively lowering your overall tax burden. Typically, the greater your tax bracket, the more advantageous charitable deductions become. 

While deductions can significantly reduce your taxable income—and, consequently, the taxes you owe—they apply only to eligible contributions. So, what criteria must a contribution meet to qualify for a tax deduction?

What are the IRS rules for charitable donations?

What qualifies charitable organizations?

To be deductible, contributions must be made to organizations that have received 501(c)(3) tax-exempt status from the Internal Revenue Service. These typically include:

• Religious organizations and churches
• Educational institutions
• Healthcare and research organizations
• Public charities addressing various social needs
• Community foundations like Greater Houston Community Foundation
• Private foundations (though different limitations apply)
• Certain veterans’ organizations and fraternal societies
• Nonprofit volunteer fire companies
• Civil defense organizations created under federal, state, or local law

Donations to individuals, political organizations, or candidates are not tax-deductible. The IRS maintains a searchable database called the Tax Exempt Organization Search tool that allows donors to verify an organization’s eligibility status.

What types of donations qualify?

The tax code recognizes several forms of charitable contributions:

• Cash donations, including checks, credit card payments, and electronic transfers
• Tangible property like art, jewelry, vehicles, and other possessions
• Appreciated assets, which can include stocks, bonds, real estate, and other investments
• Qualified charitable distributions, which are direct transfers from IRAs for donors aged 70½ or older
• And more

Each category carries specific documentation requirements and valuation rules, but asset types are flexible for donation. For non-cash donations exceeding $250 in value, donors must obtain written acknowledgment from the recipient organization, while items valued above $5,000 typically require professional appraisals.

DAFs and bifurcated gifts

It is essential to understand that if an individual wishes to donate, certain benefits are considered more than incidental. These include event tickets, raffle tickets, items won at auctions, and any goods or services received in exchange for the donation. These guidelines are in place to uphold the charitable intent of DAF contributions and to protect the integrity of the associated tax deduction. 

According to IRS regulations, DAFs cannot accommodate bifurcated donations, which involve grant distributions that contain both a tax-deductible portion and a non-deductible portion. This rule is rooted in the IRS’s clear stipulation that DAF grants must not afford any benefits to the donor, advisor, or affiliated parties that exceed minimal incidental perks.

Continue reading: Understanding the Changes in Bifurcated Gifts

Limits on deductions 

The IRS imposes limits on charitable deductions based on a percentage of the donor’s adjusted gross income (AGI). These thresholds vary depending on the recipient organization and donation type:

• Cash contributions to public charities are generally limited to 60% of AGI
• Donations of appreciated capital assets to public charities are usually capped at 30% of AGI
• Contributions to private non-operating foundations are typically limited to 30% of AGI for cash and 20% for appreciated assets

If your donations exceed these annual limits, the excess contribution amounts may be able to be carried forward for up to five subsequent tax years.

Asset-specific rules for contributions

There are circumstances and specific considerations that apply to different types of donations, some common ones include:

1. For appreciated securities held longer than one year, donors can generally deduct the full fair market value while avoiding capital gains tax on the appreciation—a powerful strategy for tax-efficient giving.
2. For artwork and collectibles, special rules apply regarding appraisals, related-use requirements, and percentage limitations, particularly for donations exceeding $5,000 in value.
3. For privately held business interests (like S-corp or C-corp stocks) donors can potentially deduct the full fair market value if donated to a public charity. 

How working with advisors can help

Charitable giving decisions are most effective when integrated into comprehensive financial and estate planning strategies. Working with professional advisors can help you take a holistic approach to giving, considering immediate tax benefits alongside long-term goals for wealth transfer, legacy creation, and philanthropic impact.

Strategic charitable planning may involve timing donations to maximize tax advantages, selecting the most appropriate assets to give, and choosing which giving vehicles (donor advised funds, scholarships, and private foundations) might be right for your unique situation. The overwhelming complexity of these issues often warrants multiple key advisors, who might include:

• Tax professionals: To ensure compliance with changing regulations and optimal deduction strategies
• Financial advisors: To integrate charitable giving with investment and retirement planning
• Estate planning attorneys: For aligning charitable goals with overall estate plans
• Philanthropic advisors: To maximize the impact of charitable contributions and facilitate relationships with your current professional advisors

These professionals can help navigate specialized giving strategies like bunching charitable donations across tax years, utilizing qualified charitable distributions from retirement accounts, or establishing donor advised funds to manage timing and tax implications.

Do you get deductions for charitable contributions if you don’t itemize?

To put it simply, you cannot claim charitable deductions unless you itemize your deductions — but this doesn’t mean non-itemizers cannot reap tax benefits. 

Standard deduction vs. itemized deduction

Essentially, taxpayers have two options when filing returns: taking the standard deduction or itemizing deductions. The standard deduction provides a flat reduction in taxable income without requiring documentation of specific expenses. For 2025, the standard deduction amounts are projected to be:

• $14,600 for single filers
• $29,200 for married couples filing jointly
• $21,900 for heads of household

On the other hand, itemizing your deductions involves listing and substantiating individual deductions—including charitable contributions, mortgage interest, state and local taxes, certain medical expenses, and other tax-deductible costs. 

Itemizing your deductions only makes financial sense when the total itemized deductions exceed the standard deduction threshold. In other words, you should have more to deduct than your respective standard deduction of $14,600, $29,200, or $21,900.

A high-level view of the current tax landscape for donations

If you know one thing happening in the current tax landscape of charitable giving, it should be the Tax Cuts and Jobs Act (TCJA). The TCJA, which was passed in 2017, nearly doubled the standard deduction while limiting or eliminating many itemized deductions—and it’s set to expire in 2025. 

This means itemization may be much more attractive again if the standard deductions are reduced to $8,300 and $16,600 for single filers and families, respectively.

Additionally, temporary provisions that once allowed non-itemizers to deduct certain charitable contributions “above the line” have expired. During the COVID-19 pandemic, the IRS temporarily suspended limits on charitable contributions, which meant individuals could deduct qualified cash contributions up to 100% of their adjusted gross income, and corporations could deduct up to 25% of their taxable income—but these provisions no longer apply. 

Want to know more about the current tax landscape in charitable giving? Read our article here: The Changing Landscape of Charitable Giving: Legislative Insights for 2025

When can non-itemizers still reap tax benefits?

Non-itemizers may still have opportunities to benefit from charitable tax incentives through solid planning and targeted giving. Relevant strategies for non-itemizers to reap tax benefits may include:

• Bunching contributions: Concentrating two or more years’ worth of donations into a single tax year may push total itemized deductions above the standard deduction threshold.
• Qualified charitable distributions: Taxpayers age 70½ or older can direct up to $108,000 (as of 2025) annually from IRAs directly to qualified charities without recognizing the distribution as taxable income—an effective tax benefit regardless of itemization status. These distributions can be directed to specific funds at the Foundation (including designated or unrestricted funds, but not donor advised funds) and may also count toward your required minimum distributions.

Even without direct federal income tax deductions, there are a number of giving strategies that may offer benefits, but you can only be sure you’re taking full advantage if you partner with experienced philanthropic professionals, like those at Greater Houston Community Foundation.

Partner with the Community Foundation as part of your tax strategy

Greater Houston Community Foundation offers valuable resources for donors at all giving levels, whether you’re looking for a partner to help unite your charitable giving and financial planning efforts or are just interested in maximizing your charitable giving tax deduction. 

Rather than making ad hoc year-end giving contributions, consider partnering with the Foundation to develop a strategic giving plan that aligns with your overall financial plan. By thoughtfully incorporating philanthropy into your overall financial planning, you can optimize both the impact of your giving and its tax efficiency.

Create a flexible charitable giving plan and stay informed about upcoming tax changes by partnering with Greater Houston Community Foundation. Call us today at 713-333-2210 or reach out directly to get started. 

More Helpful Articles by Greater Houston Community Foundation: 

• What Is the Great Wealth Transfer?
• How To Get Started with Legacy Giving
• Supporting Education: A Guide to Scholarships for Donors
• How Does a Donor Advised Fund Work?
• What’s the Difference Between a Designated Fund vs. a Field-of-Interest Fund?

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