Charitable Giving: How Your Gift Gives Back in Tax Deductions
It is without a doubt rewarding to provide for the less fortunate through charity donations. There are more than 1.5 million nonprofit organizations in the US, ranging from churches and cultural institutions to food banks and disaster relief facilities.
While there may be charitable motivations for giving to a cause you believe in, there may also be tax advantages. Keep the following points in mind when thinking about making a significant gift to a charity, whether financial or otherwise.
Itemize Your Deductions
Only if you itemize your taxes can charitable tax deductions help you pay less in taxes by lowering your taxable income. When people believe their deductions, including charitable contributions, will total more than the standard deductions, they typically itemize them. The standard deduction naturally rises each year due to inflation, so be sure to speak with a financial expert to find out what it is for the filing year in question.
Tracking and adding items that could lower your tax liability is required when itemizing deductions. State and municipal taxes, mortgage interest, health and dental costs, and charitable donations are typically included. To ensure that you have an accurate record of what to include in your itemized deductions, make sure to maintain track of all charitable contributions made during the year.
Keep Accurate Records
Keep meticulous records of your annual charity gifts to report accurate information on your taxes. The charity will give you a tax receipt if you make a monetary donation. If you make non-monetary donations, you might wish to seek a qualified appraisal to include with your tax return as supporting documentation for the deduction you're claiming.
For specific sorts of donations, there are limits on how much you can deduct. If you give a lot of clothing, furniture, or other items to a charity, they can only be deducted from your taxes if they are in "good used condition" or have a certified appraisal. Avoid throwing donations like these in a donation box if you want to deduct them from your taxes because you won't have a record of the value of the items you gave away.
Property that has been in your possession for more than a year may be donated for its entire fair market value. If you want to give a car, exercise caution because, in most cases, you can only write off the money the charity earned from selling your vehicle, not its fair market value. This isn't applicable if the charity keeps the automobile and drives it if they fix it up before selling it, if they provide a low-income buyer a discount, or if the car is less than $500 in value.
Pay Attention to IRS Guidelines
Keep yourself aware of the latest IRS regulations regarding charitable giving to prevent an audit. You should only donate to accredited 501(c)(3) organizations or private foundations. You cannot claim a tax deduction for donations to a political cause or a neighbor in need. The amount you can deduct for charitable contributions is also subject to various restrictions. Generally, you can deduct up to 50% of your adjusted gross income, but depending on who you're giving to, there are also caps in effect for 20% and 30% deductions.
Be aware of the latest IRS regulations regarding charitable giving to prevent an audit. You should only donate to accredited 501(c)(3) organizations or private foundations. You cannot claim a tax deduction for donations to a political cause or a neighbor in need. The amount you can deduct for charitable contributions is also subject to various restrictions. Generally, you can deduct up to 50% of your adjusted gross income, but depending on who you're giving to, there are also caps in effect for 20% and 30% deductions.
If you’re still unsure about the tax implications of your charitable giving, be sure to consult with a tax professional.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2023 Advisor Websites.