Imagine giving someone a simple gift. This act alone would make you feel good.
But what if you received something in return? Now that’s even better!
Now picture this out, what if by engaging in charitable works you could reduce tax.
I bet you’d want to know more about this by now.
Luckily for you, we’re going to talk about it in this article.
Here are all the things that you need to know about tax-deductible donations.
What Kinds of Donations Are Tax-Deductible?
A tax-deductible donation gives a portion of your money, stocks, goods, and properties willingly to qualified organizations such as charities, nonprofit organizations, and religious and educational groups.
These organizations must be eligible for your taxes to be reduced. You may use the IRS Tax Exempt Group Search Tool to see if your chosen organization is tax-exempt.
Don’t forget to itemize your contributions and file them on Schedule A to claim your tax benefits. You can still claim yours for nonitemizers by filing the IRS Form 1040, but you should do it now or your time is up.
How Much Of Your Donations Are Tax-Deductible?
To qualify for tax-deductible donations, you must itemize your charitable contribution, this includes gifts, money, etc. You should use the standard deduction to refer to the amount you should be filing to get your tax return.
| Standard Deduction | ||
| Filing Status | 2021 | 2022 |
| Head of Household | $18,800 | $19,400 |
| Married Filing Jointly | $25,100 | $25,900 |
| Single, Married Filing Separately | $12,550 | $19,950 |
To keep track of your contributions, try using a different charity tax savings calculator.
If your donation does not reach that amount, Don’t worry we have you covered!.
Here’s what you need to do. Use the bunching strategy.
How does the bunching strategy work?
In this method, you take the standard deduction for one year and itemize the following. This is achieved by scheduling the payment of your deductible costs such that they are maximized in the years when you itemize deductions.
| Case Study:
Two single individuals donate to their favorite organization annually and receive their tax-deductible donations. However this year they fall short of the amount needed to receive those benefits. Person A uses the traditional approach while Person B uses the bunching strategy.
Even if Person B has not reached the desired amount of $12,950 it has been compensated by his excess payment in the year 2021 while Person A still has not reached the target amount of donations. |
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How Much Do You Get Back When Donating?
From your annual gross income, 60% is the limit but can be reduced up to 20% depending on the circumstances and the type of contribution. You can refer to the IRS Publication 526 for in-depth details but here are some important things that you would find there:
- For 2021, instead of deducting from your tax return, it will now be deducted per person up to $300. Therefore people who are married can have a $600 deduction without itemization.
- Cash donations to public charities can exceed the 60% limit as stipulated in the CARES Act
- You can use the carryover process to deduct your exceeded annual contribution.
- Remember the number of organizations you have donated to will not excuse it from the 60% limit. The limit applies to all donations.
3 Things to Keep in Mind When Making Tax-Deductible Donations
If you’re thinking about contributing to a charity this year, here are a few tips to help you maximize your tax deduction.
- Only Donate To Qualified Organizations From The IRS
Remember that you will only get your tax return when your chosen organization is listed in the IRS Exempt Organizations Select Check tool. This is rule is defined by the Internal Revenue Code of section 501(c)(3). So it is important your organizations have a 501(c)(3) status.
Choosing a non-profit organization that doesn’t have the 501(c)(3) status might not guarantee you the tax exempt benefit. So make sure before you donate check the organization’s status and ask your charity of choice how much contribution is needed for it to be tax-deductible.
2. Keep Track of Your Contributions
Keep track of all of your tax-deductible donations, no matter how large or little. Records such as receipts, bank statements, and charity expenses will serve as proof that you actually made the donations.
If the donation was done by deducting your salary then keep your W-2 and make sure that the date and amount are seen.
3. Volunteering Does Not Make Your Tax-Deductible
The value of your time or service cannot be deducted under IRS guidelines, however, costs linked to volunteering for a qualified charity can be tax-deductible gifts.
Remember
- Expenditures must be directly and entirely related to the voluntary service you performed; they must not have been previously reimbursed, and they must not be personal living or family expenses.
- Miles driven to charitable events and volunteer opportunities, as well as mileage required to transport things to a donation site, can be deducted from your tax-deductible contributions.
- You may either deduct your actual expenses for petrol and other related charges using receipts, or you can use the standard mileage deduction.
Are Tax-Deductible Donations Worth It?
If you want to decrease your taxable income while also contributing to meaningful and practical initiatives to help the underprivileged in our society.
Then yes, donating to non-profit organizations on your tax return is an excellent idea. And it’s a win-win situation for everyone.
If you want to give to charity while increasing your tax refund, Don’t hesitate to contact BASC Expertise. With us, you can be certain that your taxes are done correctly, from basic to complex tax returns, we got you covered.