Tax Credits vs. Deductions

• As of August 2011, the IRS does not allow tax credits for gifts or monetary contributions or gifts of real property to eligible charities. The federal tax agency does allow deductions on your federal return for cash donations and gifts of real property to eligible charitable and nonprofit organizations in the country. A deduction is different from a tax credit because a deduction lowers your overall earned income, whereas a credit directly subtracts from the amount of tax dollars you owe. A deduction isn't as good as a tax credit, but it's the only avenue available when you're giving money away.
  
  

Limits for Charitable Contributions

• The IRS limits your tax deduction for cash contributions to eligible charities and nonprofit organizations to 50 percent of your adjusted gross income. For example, if your adjusted gross income for the year is $100,000, you may give away up to $50,000 and still receive the tax deduction. The only way for you to claim your cash contributions to charitable organizations and nonprofit groups is to completely itemize all your tax deductions. This means you must keep detailed records of all your tax-related expenditures to provide the IRS with sufficient documentation at the end of the year. A complete list of eligible charities and nonprofits is available through the IRS website.
  
  

Limitations/Requirements of Deductions

• You may only deduct donations to private nonprofit foundations, fraternal organizations and military veterans' organizations up to 30 percent of your adjusted gross income, according to the IRS. To claim a deduction of cash or real property exceeding $250 to any charitable organization or nonprofit, you must provide a bank record and payroll deduction record of the contribution. For contributions of real property, including a home or business, exceeding $500, you must complete IRS Form 8283. If your total contribution to a single charitable organization exceeds $5,000, you must also complete Section B of IRS Form 8283.
  
  

Gifts to Relatives

• Giving money to relatives generates no tax break to the receiver or the giver. You can actually incur additional tax liability if you give a cash gift in excess of the IRS's yearly cash-gift allowance. As of 2011, this cash limit is $13,000. You must claim any amount given in excess of this amount as income on your federal tax return. While giving a cash gift may not provide an immediate tax deduction or credit, it does reduce the chance your relatives will have to pay an inheritance tax in the event of your death. Giving the money as gifts during your lifetime also reduces the size of your estate, which lowers the estate's tax liability after your death. This allows your relatives to keep more of what you leave behind.