Ask the Editor, October 3: Tax Questions on the Charitable Deduction

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the tax rules for charitable deductions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. How do I substantiate my write-off?

Question: I donated money to charity earlier this year, and I would like to deduct the contribution on my tax return since I will be itemizing on Schedule A of Form 1040. What documents do I need to keep to support the tax write-off?

Joy Taylor: The required documentation for substantiating a charitable contribution write-off differs based on whether you are donating property or cash and the amount of the donation. I've set forth some of the rules here. For charitable gifts of cash:

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• Keep cancelled checks, electronic fund transfer receipts, credit card statements or a letter from the charity
• For cash donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required

For charitable gifts of property:

• A letter or receipt from the charity suffices for property donations under $250
• For property donations of $250 or more, receipt of a contemporaneous written acknowledgment from the charity is required
• Attach Form 8283 to your tax return if your property donation exceeds $500
• Obtain a written appraisal for a donation of property over $5,000

You can find more information on the substantiation rules for charitable donations in IRS Publication 526, Charitable Contributions.

2. Will the IRS audit me?

Question: I am planning on making a big donation to charity closer to year-end. Will my IRS audit odds go up because of the large charitable contribution deduction I claim on Schedule A of my 1040?

Joy Taylor: It depends. You won’t automatically be audited by the IRS for claiming big deductions on your tax return. But if your write-offs are disproportionately large when compared with the income reported on your return, your risk of an audit rises because that is a key factor in the IRS’s process of selecting returns for examination. Make sure to keep good records and to comply with the substantiation rules for charitable contributions, which you can find in IRS Publication 526 (as above).

3. What if I donate an annuity contract?

Question: I am thinking of donating an annuity contract I own to charity. Can you explain the tax consequences if I decide to do this?

Joy Taylor: You will generally be treated as receiving taxable income equal to the difference between the annuity’s cash surrender value and your investment in the contract. For example, say you have a small variable annuity in which you invested $20,000 years ago, and it’s now worth $43,000. If you donate it to charity, you’ll have to report $23,000 of the appreciation as additional income on your tax return in the year of the transfer. You will also be able to take a charitable deduction on Schedule A of Form 1040. The charitable write-off will equal the value of the annuity in most cases.

4. Any changes for next year?

Question: I heard that the “One Big Beautiful Bill” (OBBB) allows nonitemizers to deduct charitable contributions. When does this take effect?

Joy Taylor: The OBBB has mixed news for individuals who make charitable donations. Two new rules begin in 2026, meaning they will first affect your 2026 tax return that you file in 2027. First, the good news. Nonitemizers will be able to deduct up to $1,000 of their charitable cash contributions. The amount is $2,000 for joint filers.

Now, the bad news. Charitable donations claimed by itemizers on Schedule A will be subject to a haircut. Beginning with 2026 returns, the charitable write-off is deductible only to the extent that total charitable gifts exceed 0.5% of adjusted gross income. For example, say your AGI is $232,000 and you donate $14,000 to charity in 2026. If you itemize on Schedule A, you can only deduct $12,840 of charitable contributions ($14,000 – ($232,000 x 0.005)).

5. Will I owe tax if I donate I bonds?

Question: I own Series I savings bonds that have not yet matured. Can I donate the I bonds to charity before they mature and avoid a federal income tax hit?

Joy Taylor: No. Series I (and EE) bond buyers have a choice when they acquire the bonds. They can pay federal income tax each year on the interest earned or defer the tax bill to the end. Most people choose the latter. They report the interest income on their Form 1040 for the year the bonds mature (generally 30 years) or when they’re cashed in, whichever comes first.

I assume you have deferred reporting for federal income tax purposes the annual interest that you earned on the savings bonds. Gifting away EE or I bonds to someone else, including a charitable organization, before those bonds mature, doesn’t let you avoid the tax on previously untaxed interest. Instead, it will accelerate interest reporting. You will owe federal income tax on all the previously deferred interest in the year you make the donation.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

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