Reduce Your Taxable Income By Giving Back
Reduce Your Taxable Income by Giving Back
Sometimes it (literally) pays to give back.
We have reached the final stretch of the year, which means the season of giving is upon us.
Besides the fuzzy-good-feeling we get from supporting our favorite cause, your donation to a “qualified” organization can reduce your taxable income and lower your tax bill.
You probably are starting to get more and more solicitation emails, phones calls, and mailers from charitable organizations during this season. Before you give, consider how your charitable donation influences your financial bottom-line.
For it to be deductible giving, the organization must be “qualified"
A qualified organization is one that has been granted tax-exempt status by the IRS and therefore, is eligible to receive tax-deductible contributions. Determine if the organization has a 501(c)(3) status or use the IRS search tool to confirm they are qualified.
What are the guidelines to get the deduction?
To claim a charitable donation, you must itemize. This tax deduction is available to taxpayers who have donated cash or property to a qualified organization during the tax year. The value of your time and services to an organization are not deductible.
If you donate property such as clothes to Goodwill, you generally can deduct the fair market value of it at the time of contribution.
If you donate cash without receiving anything in return, you can deduct the entire donation amount. If you receive something in return, you must subtract the market value of what you received.
Example: If you pay $75 for a ticket to attend a charity banquet and the market value of that ticket is $40, you can only deduct $35 as a charitable contribution.
Under the new tax law, the total amount you can deduct for charitable contributions is limited to 60% of your adjusted gross income.
If your donation is more than $250 in value, you must obtain a receipt from the organization. Otherwise, a credit card statement or cancelled check will suffice.
The Bottom Line:
We hope that you give out of the goodness of your heart, not just because of the tax incentive. However, if donating to charity is something you already do or plan to start doing, why not take advantage of the tax benefit that comes with it?
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