If you’ve ever cleaned out your closets, donated old furniture, or written a check to a nonprofit organization, you may have wondered if those charitable donations can lower your tax bill. Since the rules about tax deductions for charitable contributions can be confusing, in today’s post, I’ll explain how it all works for your personal taxes and for small business owners. I’ll also give you the scoop on the new deduction for cash donations in tax year 2026.

Are charitable donations of goods tax deductible for individuals?

Yes, non-cash donations made to qualified nonprofit organizations may be tax deductible. However, simply making a donation doesn’t automatically reduce your taxes. To benefit from the charitable contribution deduction, individual taxpayers usually need to itemize deductions on their tax return instead of taking the standard deduction.

This rule is what often surprises people because the average taxpayer typically doesn’t donate enough in one year to make itemizing worthwhile. As a result, they usually take the standard deduction, which means that their charitable donations don’t provide additional tax savings even though the donations are technically deductible.

One thing to keep in mind is that if you’re able to plan ahead and group multiple years of donations into one tax year, this strategic tax-planning can help you exceed the standard deduction threshold to make the most of your contributions in terms of tax savings.

Something else that surprises people is that a charitable donation deduction doesn’t reduce their tax bill by the amount that they donated. Instead, because it’s a deduction, the donation amount can lower your taxable income, which may reduce your overall tax bill.

Are cash donations tax deductible for individuals?

Before tax year 2026, the same requirement for itemizing would apply to cash donations as well. However, beginning in tax year 2026, there’s a new charitable deduction available even if you take the standard deduction.

With this new deduction, single filers can deduct up to $1,000 in cash donations to qualifying organizations, and married couples filing jointly can deduct up to $2,000. This is called an “above-the-line” deduction because you’ll take the standard deduction and still receive a separate deduction for your charitable donation.

To qualify for the deduction, the donation must be made by cash, check, or credit card. Again, this deduction doesn’t apply to non-cash donations, and it also doesn’t apply to cash donations made to donor-advised funds or private foundations.

Are charitable donations tax deductible for small businesses?

Yes, just like for individuals, non-cash charitable donations can be tax deductible and the new above the line deduction for cash donations can apply as well. However, the rules for how to claim the deductions depends on whether your small business is a sole proprietorship, single-member LLC, partnership, or S-Corporation.

By the way, no matter your business structure, consulting with an accountant before deducting charitable donations is always a good idea.

Sole Proprietors and Single-Member LLCs: For these types of businesses, charitable donations flow through to the owner’s personal tax return instead of being deducted separately by the business. Non-cash donations are deducted on Schedule A if the owner itemizes, and beginning in tax year 2026, the cash donation deduction is available if the owner takes the standard deduction.

Partnerships and S-Corporations: For these businesses, charitable contribution deductions also pass through to the owner’s personal tax return. If there’s more than one owner, partner, or shareholder, then each would report their share of the contribution on their own return.

C-Corporations: These businesses can usually deduct charitable contributions directly on the corporate tax return, but there are some IRS limitations. For instance, there is a new 1% floor on corporate deductions, so C-Corps can only deduct charitable contributions that exceed 1% of the corporation’s taxable income.

Are charitable donations of services tax deductible for small businesses?

The short answer is no, but you may still be able to deduct out-of-pocket expenses that apply to your services. Check out my blog post dedicated to this topic for complete details.

What kinds of donations can be tax deductible?

All of these types of donations can be tax deductible:

• Cash
• Clothing
• Household goods
• Furniture
• Vehicles
• Inventory from businesses
• Certain volunteer-related expenses

Which charities qualify for tax-deductible donations?

The IRS only allows deductions for donations made to qualified charitable organizations. These include the big names you’re familiar with like Goodwill, The Salvation Army, Habitat for Humanity, and United Way. It also includes donations to other qualified nonprofits, religious organizations, educational institutions, and many public charities.

You can use the IRS Tax Exempt Organizations Search Tool to make sure the organization you’re donating to has tax-exempt status.

An important note here is that gifts made directly to individuals usually aren’t deductible. The IRS also has strict rules for political contributions, crowdfunding campaigns, and informal fundraising efforts, which are usually not deductible even when the cause feels charitable.

How much can you deduct for donated items?

Beginning in tax year 2026, taxpayers who itemize can only deduct the amount they gave to charity that is more than .5% of their adjusted gross income (AGI). For example, if your AGI is $100,000, then the first $500 of your charitable donations (cash and non-cash) aren’t deductible, but anything over that threshold may qualify. This limit doesn’t apply if you don’t itemize and are reporting the new above-the-line deduction for cash donations.

When it comes to non-cash donations, you can generally deduct the fair market value of the items. This means you can deduct what the item might reasonably sell for in its current or used condition and not what you paid for it originally. For instance, a coat that originally cost $150 may only be worth $20 today.

Organizations like Goodwill publish valuation guides to help donors estimate the fair market value for common donations. I recommend using some sort of guide when you’re determining the fair market value of your donations because the IRS expects the values to be realistic and supportable, so those published guides can be used as your supporting documentation.

What records do you need for deducting charitable donations?

Just like for any tax deduction or other financial areas of your business or personal finances, good documentation is very important.

For charitable donations, you should keep:

• Donation receipts
• Bank or credit card records for cash donations
• Detailed list of donated items
• Estimated fair market values
• Photos of valuable items

If your non-cash donations exceed certain IRS thresholds, you’ll also need to complete additional tax forms. For larger donations like property worth more than $5,000, a professional appraisal may also be required.

Can businesses donate inventory instead of throwing it away?

Yes, your business can absolutely donate inventory, and this can sometimes create tax deductions. For instance, a clothing boutique could donate unsold inventory to a local nonprofit, or a bakery could donate excess food to a shelter.

The only warning here is that if you’re donating inventory, the rules can be a bit more complex, especially when you throw in cost basis and inventory accounting. If this is something you want to do, then just touch base with an accountant first to make sure you’re not missing any details.

Abridged by Amy

Tax deductions for charitable donations are often misunderstood. One thing to keep in mind is that donations may reduce your taxable income, but they don’t create a dollar-for-dollar reduction in the amount of taxes you owe.

Whether charitable donation deductions will lower your tax bill depends on your particular circumstances and whether you’re donating cash, goods, or services. For individuals donating goods, the biggest factor to consider is whether itemizing deductions make sense. For business owners, the tax impact depends on your business structure and other inventory and reporting rules.

The bottom line is that when you’re thinking about charitable giving, the biggest consideration is supporting causes and organizations that you care about. Any tax savings that may come from your donations are just an added benefit.