How Much Do Charitable Donations Reduce Income Tax?

If your expenses exceed the standard deduction and itemizing is more beneficial, you may wonder how donations affect your taxable income. Assuming an adjusted gross income (AGI) of $105,000, you can deduct cash contributions to qualified charities up to 60% of your AGI—approximately $63,000. Any contributions beyond this limit can be carried forward for up to five years. While GoFundMe donations to individuals are not deductible, if the funds are collected on behalf of a qualified charitable organization, then they ARE deductible.

How are charitable deductions reported?

1. Individual Deductions: Report charitable contributions on Schedule A as itemized deductions; only deductible if you itemize on your individual return.
2. C Corporation Benefits: Claim charitable deduction directly on the corporate return.
3. S Corporation Pass-Through: S corp donations are allocated to shareholders and reported on their individual returns.
4. No Direct Business Deductions: LLCs, sole proprietors, and S corps do not deduct charitable gifts at the business level.

Key Points:

1. Charitable deductions lower your taxable income, but they do not reduce your tax liability on a dollar-for-dollar basis. For example, if you are in the 22% tax bracket, a $1,000 donation could reduce your tax liability by about $220.
2. Know the Limits – deduction limits vary by entity type and AGI. *Charitable donations are not a business expense or deduction – unless C Corporation.
3. Here are limits on how much you can deduct, usually based on your Adjusted Gross Income (AGI) and entity type. For individuals, cash contributions to qualified charities are generally capped at 60% of AGI.