Maximizing Charity Tax Deduction – What You Should Pay Attention To. The good thing about paying taxes is that you can deduct tax income or return by numerous methods. One of them is by taking advantage of the charity tax deduction. As the name suggests, it reduces taxable income by allowing businesses and taxpayers to deduct property and cash donations to qualified charitable institutions.
The deductible amount in a year is subject to limits. It also depends on how you file your taxes and the donation types. However, I don’t want to discuss the basic requirements on how to claim it or talk about the types of charity. Instead, you are going to learn about how to maximize it.
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How Can You Maximize Charity Tax Deduction?
Making a donation is a good deed and it can help you reduce your tax bill. The best part is that you can maximize your deductible donations for the current season. Here are several things that can help you:
1. Skip the itemization
Here is a fact. You are allowed to get a charity tax deduction with or without the itemization procedure. People only know that they can claim a charitable donation on their taxes if they itemize their deductions. Well, the case is not always like that. The policy has changed since the presence of the CARES ACT.
Due to that new policy, you now can deduct up to $300 (filing personally) or $600 (filing jointly with your spouse) for a cash charitable contribution, even if you don’t itemize the deductions. One thing, this rule only applies if you do cash donations. That means any goods donations like clothing, jewelry, art, and others won’t qualify.
In order to save time and money, you don’t need to itemize your deductions when claiming a charity tax deduction, especially when donating cash. As a tip before filing the return, you should get an acceptance letter from the charity and keep a receipt for your records.
Another important thing to remember is to check whether the charitable institution is tax-exempt. You can find out the information by using the IRS’s search tool, actually. The sole requirement is the EIN of the organization.
2. Donate stocks to charities instead of cash
Maximizing charity tax deductioncan be done using this method either. If you don’t feel like donating cash before the year-end, try giving stocks instead. However, it is recommended to check if the charitable organization you want to donate to has a broker account that receives your donation. So, why are stocks better?
The first reason why you should consider giving stocks instead of cash is that your stock donation has the same value as FMV. That means you can qualify for a tax donation of today’s stock’s FMV instead of based on its original price.
Another reason is that you don’t need to pay any capital gains when giving stocks to that charitable institution.
3. Bunching the charitable donations
You can maximize your charity tax deduction by bunching your charitable donations. What does it mean? If you want to maximize your donation in a big amount, for instance, $9000, consider this strategy. The aim is to stack your charity in the current tax year.
Let’s take a simple case as an example. Let’s say you are single and want to give $9000 annually to your preferred charity organization. Since you don’t have other itemized deductions, though, that donation won’t qualify you to get the maximum donation as an itemized reduction. It is because the standard deduction for single taxpayers is $12,550.
Due to that reason, you should use the bunching strategy. With it, you give the donation of $9000 on January 1, 2022, and another donation (same amount) on December 31, 2022. This way, you now can claim the $18,000 charity as an itemized deduction on your 2022 tax return and will deduct your taxable income.
Tips to Make Your Charitable Donation Count
Here is the thing. A charity tax deduction is a little bit tricky and cannot be guaranteed just because you are feeling good about giving those things to others. There is always the tax law, so you should follow any rules that apply to it. The good thing is that you can do something about it. Here are some examples:
1. Choose the right time
Always pay attention to the calendar. Your donations may qualify for a charity tax deduction only in the year when you give them to a qualified charitable organization.
It is recommended to itemize your deductions to claim a charitable deduction on your tax return, even though there is no obligation to do so.
3. Don’t donate to individuals
Any donations that you make to individuals are not eligible for a tax deduction. You cannot reduce contributions to specific persons no matter how big it is.
4. Collect receipt
As a donor, you should keep all the records regarding the items that you give to the recipients regardless of the amount. The receipt should be proven by a bank record. This includes a credit card receipt or canceled check. It should also have clear annotations like the name of the charity or the name of the recipient.
5. Choose carefully
Don’t be hasty when making a donation and claiming a charity tax deduction. Why? Not all donations given to qualified charitable organizations can be deducted. If you are not sure about it, you can ask the IRS or conduct small research first.
6. Take advantage of payroll deductions
To make sure that your donations are deductible, you can use your payroll deductions. Your employer can participate in it, so you can make donations directly from your paycheck.
7. Donate appreciated assets
If you decide to donate something, you should choose appreciated assets instead of cash. Stocks and buildings are the perfect examples of it.
Well, you have learned how important a charity tax deduction is and how you can maximize its benefits. However, you should also maintain proper records or documentation of your donations. If you want to claim it, then you should provide proof or verify your claim. The good news is you can take advantage of some IRS tools to make anything easier. These include basic knowledge, requirements, the recipient’s qualification, and many others. So, you are likely to have no problems when claiming the deduction later.