If you donate a prize for a local charity raffle or contest, you can deduct the value of the prize as a charitable contribution. If you win a prize and then donate it to charity, you can still claim a deduction but you will also have to claim the prize as income -- the two amounts basically cancel each other out. Another option in some cases is for prize winners is to simply donate the prize before receiving it, eliminating the need to report it at tax time.

Deductable Donations

If you are providing the prize for a charity raffle or other contest, you can count it as a charitable donation as long as it is a tangible item or money. You cannot take charitable deductions for donating your own services. For example, if you own a nail salon and you donate a free manicure, you cannot take a deduction. But if you donate a certificate that you bought from a nail salon, you can take the deduction. Ask the charity for a written acknowledgement of the donation for your records.

Tax on Prizes

If you accept a prize, even one from a charity, you normally must count the value of the prize as income and pay taxes on the amount. Organizations are required to report any prizes worth $600 or more to the Internal Revenue Service. You can get a deduction for donating the prize to charity, but it will only help if you itemize deductions rather than taking the standard deduction. One way to avoid reporting the prize as income is to have the prize-giving organization donate the prize directly to a charity for you.

Prize Transfers

You are allowed to transfer only certain types of prizes to charity without claiming them as income. First, you cannot have actively sought the prize by entering a contest or raffle. Second, the prize must be awarded based on your "charitable, artistic, scientific, and like achievements." Third, the prize must be transferred directly to the charitable organization without you taking possession of the prize. If you are given the prize as a surprise, you are allowed to give it back without penalty. If you go this route, neither you nor the organization giving the prize can take a charitable deduction for the donation.

Limits on Deductions

One thing to remember is that if you do win a big prize, and then later donate it to charity, your total charitable deductions for the year are limited to 50 percent of your adjusted gross income. Any excess amount must be carried over to the following year, for a maximum of five years.