There are many ways you can maximize your tax deductions and ultimately reduce the amount of taxes you pay by April 15th. However, you must get started now, because most strategies have to be completed by year-end in order to affect your return next year. One effective way you can save taxes is through charitable giving. Not only does it feel good to give, but you can also benefit from receiving a tax deduction. It’s a win-win.
There are several ways you can donate to a charity:
- Cash or check
- Appreciated stock or real estate
- Clothing, household items or vehicles
- Your time (only deductible if it incurs expenses)
Whether you are donating bags of old clothes to Goodwill or writing a check to a local non-profit, your charitable act could reap great tax benefits for you. For example, let’s say you donated $1,000 worth of clothes and household items to your local thrift shop—if you’re in the 25% tax bracket, that could mean $250 in tax savings to you. If you donate a considerable amount to charity, there are some additional tax-efficient strategies you may want to consider:
Since there are multiple ways you can give, there are different rules and obstacles you might incur depending on the method you use. It’s important to know the facts before you take the next step, because often times your charitable actions are irrevocable.
Make sure you have proof of your donation.
Avoid making donations in cash because often times obtaining proof is more difficult than paying with check. Never pay cash through the mail, for it could get lost or stolen. Always make sure to receive a receipt or written proof of your donation. No written proof = no tax deduction.
Avoid charity scams.
If you are contributing to a charity or organization you are unfamiliar with, always do your research before giving to them. Make sure it is a qualified charity by visiting https://apps.irs.gov/app/eos/ . This tool from the IRS will tell you if the organization is eligible to receive tax-deductible charitable contributions. Avoid giving personal information and report any suspected fraud.
Understand the rules and limitations of your contributions.
Depending on the type of contribution, there are sometimes rules and limitations that apply. For example, if you contribute more than 20% of your adjusted gross income to charity, be aware of contribution limits. If the contribution is made to a public charity, the deduction is limited to 50% of your contribution base.
Here’s the beauty of it—your charitable contributions not only help others, but help you pay less when tax season rolls around.
Find qualified non-profit U.S. organizations in your area by clicking here: https://apps.irs.gov/app/eos/