Giving From Your Heart (Using Your Head)

The ancient truism, “from those whom much is given, much is expected,” has been taken to heart by many an intelligent individual, but many fail to take advantage of the way that Uncle Sam actually supports this mission– primarily through tax deductions. Turns out, charitable giving can be a great way to make the world a better place while not breaking your bank. Here are just a few ways to maximize your tax benefits from charitable gifts:

  • Check that you’ve donated to an eligible organization. This is the first step when itemizing deductions. TaxACT suggests searching “the IRS’ database of Exempt Organization Select Check at irs.gov. Most religious organizations and government agencies are eligible, even if they’re not listed in the database.”
  • Donate household goods, real estate or stock. Recall that any personal property in good condition, such as clothing, furniture, or other household goods, may be donated and then written off for their fair market value. Even illiquid assets have a place in the world of giving, as you are able to receive an income tax deduction for the fair market value of the gift. Donating stock is a great way to avoid paying capital gains tax due on the appreciation, and you will be able to deduct the fair market value of the stock on the day of the gift.
  • Get a receipt for donations. For cash, this would mean keeping a bank record of the contribution with the name of the charity, date, and amount of the gift. Additionally, if the amount is upwards of $250 then you will need a written acknowledgement from the charity itself. You should follow the same logic for noncash donations, including a description of the items and an appraisal for collectibles.
  • Remember that you can be reimbursed for vehicle expenses. Therefore, consider logging miles when volunteering for a charitable organization. Investopedia notes that you are allowed to claim 14 cents per mile and additionally must obtain a written confirmation from the charity for the volunteer driving.
  • Keep track of your carryforwards. Since donations have ceilings in relation to deductions from your adjusted gross income (AGI) that usually hover at or below 50%, remember that the excess of that can be carried over to apply to next year’s income tax deduction. An article from Investopedia attests that you are able to “carry them forward for up to five years, after which time, they expire and you can no longer use them. If you have carryforwards, track them carefully so that you use them up before expiration, if possible.” For example, if your AGI this year was $50,000 and you gave away $30,000 in cash to a qualifying organization, $25,000 (50% of AGI) may be written off for this year and the extra $5,000 may be carried over into the next five years before it expires.
  • Even attending a fun charity event counts as a tax deduction, for the amount exceeding the fair market value of the event. Moreover, if this charity event happens to have an auction, you may calculate a tax deduction worth the amount above the fair market value for an item that you purchased from the auction. For example, if you won a vacation in the Dominican Republic valued at $7,000 and you paid $10,000, you could itemize a deduction of $3,000.
  • There are many easy tools out there to assist in keeping track of all your good deeds. The Forbes article “4 Steps to Maximize Your Charitable Giving Tax Break” specifically recommends the ItsDeductible App. Others include iDonatedIt and UDoGood.

Conclusion

Unfortunately, not every heartfelt act of charity is tax deductible. Keep in mind that donations to charities that operate under foreign laws or giving time or blood to a blood bank aren’t tax deductible. In conclusion, the best guidelines to follow when giving with your heart as well as your head are to keep track of every item, estimate the value as accurately as possible, and to never underestimate the exponential power of a good act, even in the eyes of Uncle Sam.

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