Giving Back: How Charitable Donations Help With Tax Breaks

Giving Back: How Charitable Donations Help With Tax Breaks

Americans are generous when it comes to giving back to the community and contributing to a noble cause. According to the Annual Report on Philanthropy for 2021, individuals, bequests, corporations, and foundations donated an estimated $484.85 billion to charities.

The total grew 4.0 percent over the previous year. The trend is surprising, considering the country was battling the pandemic crisis during the year.

Another survey shows that the average amount of charitable giving in the US is $813, which is quite impressive. It’s inspiring if you wish to join the donation bandwagon. Beyond philanthropy, giving back to the community is a savvy decision for tax-conscious Americans. It can significantly lower your tax bill if you leverage it wisely.

Saving taxes is a pressing concern for Americans because the average tax rate in the country was 13.63 percent in 2020. How can donations help you minimize your dues to the IRS? That’s a tricky one if you do not know much about deductions and credits.

We have a few helpful tips to help donors score the tax breaks they deserve for their generosity.

Think Beyond Cash, Food, and Clothes

Giving Back: How Charitable Donations Help With Tax Breaks

If you think writing a check or giving in kind to a non-profit promoting your favorite cause is the only way to give back, you are in for a surprise. Think beyond cash, food, and clothing because there are several options to show your solidarity toward a cause.

You may donate stocks, mutual funds, bonds, real estate, and other potential investments if you are a high-net-worth philanthropist. Donating these helps eliminate capital gains taxes as you contribute long-term appreciated assets to a charity. It is better than selling the assets first and donating the after-tax proceeds.

Giving your vehicle is another tax-savvy way to donate because the IRS permits vehicle owners to claim a legit tax deduction on the donated vehicles. These include cars, trucks, recreational vehicles, and boats. Organizations like Donate for Charity help donors support non-profits across the US with vehicle donations.

According to Donate for Charity, the tax deduction a donor can claim depends on the sale price of the vehicle. If it sells for over $500, the deduction is equal to the selling price. Conversely, vehicles selling below $500 entitle the owner to a tax break of the selling price or the fair market value (maximum of $500), whichever is greater.

Itemize the Deductions

Giving Back: How Charitable Donations Help With Tax Breaks

As a rule, you can claim any tax deduction only if you itemize it, and charitable donations are no exception. You should choose to itemize if the itemized deductions exceed the standard deduction because you cannot claim both.

The standard deduction amounts for 2023 taxes (to be filed in 2024) are:

  • Single and married taxpayers filing separately: $13,850
  • Head of household taxpayers: $20,800
  • Married filing jointly/surviving spouses: $27,700

If the numbers sound confusing, you can seek advice from a tax specialist in this context. Besides itemizing deductions, get an acknowledgment letter from the charitable organization you donate to.

Ensure it has key details like the organization’s name, the donation amount, and the contribution date. Also, retain a canceled check or credit card receipt for the record.

Plan Your Giving

Giving Back: How Charitable Donations Help With Tax Breaks

Getting the largest deduction possible is about strategic planning. Missing out on tax planning means you may lose the opportunity to claim a big break. Consider your current tax bracket and foresee it for the next year. If you think that you will be in a higher one next year, taking the deduction ahead is a good idea.

Planning large charitable gifts can help you maximize your deduction and lower your out-of-pocket cost. Experts recommend stacking up your donations in a tax year to make the most of the deductions.

For example, you can give $10,000 on January 1 and December 31 in the same year to claim an itemized deduction worth $20,000 on your tax return for the year instead of sticking with the standard deduction.

The amount can give you a significant break. You can even carry forward the amounts if they hit the maximum limits.

Conclusion

Giving away is a way to do your bit for the community. You can choose a cause and commit to contributing to it every year. The good thing is that you end up saving big on your tax bills. You can maximize the deductions by choosing your donation and timeline wisely.

Also, ensure maintaining detailed records of contributions to claim the tax break. Follow these tips to give back and reduce the tax burden on your wallet.

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