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Year’s end brings an influx of donations. There are many incentives to donate, from helping those in need to lowering your income tax expense. Whatever your reason for spreading cheer this year, there are some mistakes that can be made during the process. One of the biggest mistakes made when donating is forgetting to record the donation for taxes. Considering how donations benefit your taxes, you may find yourself in a particularly giving mood this year.
It’s important to have a deliberate plan when it comes to donating to ensure you’re meeting charity deadlines and adhering to limitations that qualify your donation for tax deductions. There are a few questions you should ask yourself prior to donating that will relieve future hassling.
- Is the charity a tax-exempt organization? Your donation will only be considered for a tax deduction if it goes to a tax-exempt organization. This means they must withhold a 501© (3) status, as indicated by the Internal Revenue Code. It is also helpful to inquire the charity of your choosing what percentage of your contribution is tax-deductible.
- Is my itemized deduction greater than the standard? If not, you may find it more fiscally savvy to forego any itemization of giving. Though it is still advised to keep record of your yearly giving, it is recommended to take the standard deduction if your giving records don’t accumulate to a larger number. If you aren’t sure whether your donations sum to a greater amount than the standard, settling for the standard will avoid any tax software or preparer costs.
- How much can I deduct? The IRS states you may deduct up to 50 percent of adjusted gross income. In some cases, however, your deductions may be limited to 20 or 30 percent of your AGI.
Having valid documentation of your donations is a necessity if you wish to implement how donations benefit your taxes. Written confirmation from your chosen charity is required if you give a cash donation over $250. Having a receipt of the gift is helpful to collect as well, should you be audited. Keeping records of any donation amount is beneficial for the end-of-year review. Maintaining valid records will make the deduction process much more clear-cut come tax season.
Give What You Can
You may be eligible for tax deductions if you donated time or goods this year. If you have expenses that were a result of volunteering, these may qualify to be written off from your taxes. An example of this would be gas receipts accrued while using your car to get to charity events or transport goods for an organization. You can maximize the opportunity to donate to clean out the house and get a tax break by donating household goods and acquiring a written receipt from the org.