Who Gets the Tax Deduction for a Charity Donation in Lieu of a Gift?

You make a charitable donation in someone’s name as a gift to them. Who gets the tax deduction?

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

Does the giver or receiver of a charity gift get to claim the charitable contribution tax deduction?

It might surprise you to learn that the gift giver of a charity contribution gets to take the tax deduction.

Many people will think that’s not fair. Why does the gift giver get to claim the tax deduction when the gift on behalf of the recipient?

Tax Status of Charity Gifts

As far as the IRS is concerned, the gift giver hasn’t given the recipient anything. The donation want from the gift giver directly to the charity.

All the gift recipient got was a certificate acknowledging the gift.

Is a tribute gift appropriate for a special occasion?

Now it’s important to pause and separate the IRS rules from gift giving etiquette and what people think is a thoughtful gift.

Charitable donations are widely accepted as appropriate gifts for many occasions. A lot of people even ask for them on a special occasion.

What the IRS is saying is that the gift receiver never had the money to begin with so they have nothing to deduct. The deduction comes from the income the gift giver earned to pay for the charitable donation.

So why can’t you deduct other gifts?

If the gift giver gets to deduct charitable contributions, why can’t they deduct other gifts? That’s just the way it is.

The purpose of the charitable contribution deduction is to encourage people to donate to charities.

The government has decided that these organizations do good and grants a deduction to help fund them. The government hasn’t decided to encourage people to give each other Christmas presents.

So it’s not the fact that someone gave a gift that makes it deductible. It’s that all qualifying charitable contributions are deductible even if you don’t make them as a gift.

Do charitable contributions as a gift count towards the gift tax limits?

A charitable contribution as a gift also won’t generally count towards the gift tax limits. That goes back to the IRS not recognizing your donation as a gift.

Since the IRS says you didn’t give a gift, you don’t have to fill out a gift tax form or subtract the donation from your lifetime gift tax limit.

Are there limits on what you can donate in honor of someone?

There is no limit on the amount you can give to charity as a gift or otherwise. The IRS does limit the amount of your deduction.

Under the charitable donations tax deduction limit for 2022, you can deduct charitable contributions worth up to 60% of your Adjusted Gross Income. This is for all of your donations combined including gifts and donations that aren’t gifts. It’s not per person you give to.

Is there any way to let the gift recipient claim the tax deduction?

If you don’t need or want the tax deduction and want the gift receiver to claim it, it’s not as simple as letting them. That can work with things like claiming dependents but not when you donate in honor of someone.

What you can do is give the gift recipient the cash. They can then make the deduction to charity and claim the deduction since it’s now their money.

One thing to watch out for is if you force them to make the donation. The IRS might say they didn’t have control over the money so it’s really your donation.

So giving someone who said they don’t want gifts cash and saying they can donate it will work. Making them sign a paper saying they will donate a gift likely won’t work.

Note that if you do it this way, the gift tax rules will come into play depending on the size of the gift.

What do you need to do to claim your tax deduction?

When you make a donation in honor of someone, there are a few things you should do to make sure you can claim your tax deduction.

  1. Save a copy of the donation form
  2. Make sure you get a tax receipt showing the donation amount from the nonprofit organization
  3. Saving the acknowledgment letter of your tribute gift can give you additional proof

You generally don’t need to get a separate letter from the special person you decided to honor. Again, your donation’s tax deductible status doesn’t depend on whether or not it was in honor of someone.

When you file your tax return, you’ll include all of your donations in your Schedule A Itemized Deductions. You’ll generally want to keep your proof of what you donated for at least six years in case the IRS audits you.

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