Tax-Deductible Or Not? Your Guide To End-Of-Year Donations

Many people consider donating to charity at the end of each year when holiday celebrations are in full swing and expressions of appreciation are in full swing. It could be the local animal shelter or a scholarship fund at an alma mater doing amazing work. Donating to a cause that tugs at your heart or makes you feel good about doing good can be a great cause.

It’s a great time of year to open your bank account and make a donation. It’s also a great time to make a small contribution to help you get by until the end of the year.

The organization to that you donate your money will benefit. Supporting a cause or project you believe in gives you a great feeling. You may be able lower your tax bill.

These are some of the things that you might want to think about when making charitable donations at the end of the year. Continue reading to find out:

* What is charitable giving?

* Can charitable contributions be deducted?

* What amount of charitable donations are tax-deductible?

* How can I increase my charitable giving?

What is Charitable Giving?

According to the Internal Revenue Service (IRS), charitable donations are gifts of money, property or any other assets that you make to a qualified organization known as a501(c)(3). You can search the IRS database to find out if the organization you wish to support is eligible for tax-deductible contributions.

Keep in mind, however, that donations of money or assets to political campaigns and parties are not tax-deductible. Participation in political campaigns and activities is not allowed for organizations that are not 501(c).

However, organizations that are not biased in their political activities can sometimes be eligible. A group can still educate about the electoral process while remaining within guidelines. They simply need to do it impartially.

Recommended: What Is a Charitable Gift Annuity?

Can I deduct my year-end charitable donation?

Tax filers who had itemized their deductions could not deduct charitable donations in the past. This means that they took the complicated route of listing all eligible expenses, rather than taking the standard deduction.

The CARES Act, which was passed as the coronavirus pandemic broke out, provided a reprieve. A new provision was created by the IRS that allows individuals to deduct $300 and joint filers to deduct $600 in donations to qualified charities in 2021. This applies even if they don’t itemize. This provision made charitable giving a little easier during this stressful time.

It is important to remember that this provision expires in January 2022. Itemization is the best way forward.

What is the Tax Deductibility of Charitable Donations?

Are you curious about the tax breaks that might be available for charitable giving? There are limits to how much charitable contributions you can deduct from taxes. These limits are often updated by the IRS. The percentage of your adjusted gross (AGI) you can claim for the amount you are allowed to deduct is usually used.

This limit was raised to 100% of an individual’s AGI in 2021. This was done to encourage people to give to charities in the most difficult times of the COVID-19 pandemic.

However, this guideline has been changed for 2022. This guideline was lowered to allow individuals to deduct no more than 50% of their AGI to make cash donations to charities. If you make a noncash contribution such as stock shares, the maximum figure is 30%.

You are free to give as much or as little as you wish. Keep in mind, however, that charitable giving exceeding these amounts is not allowed to be deducted from your tax. These tax changes are a great time to make a larger charitable donation.

How to Lower Taxable Income for High-Earners

Tips for End-of-Year Donations

Here are some strategies to increase the impact and benefits of charitable donations.

Make a Timely Donation

Keep track of when you donate: December 31 is the deadline for charitable donations. You will need to ensure that your charity owns the asset you donate if you want to deduct it from your tax. Also, make sure your preferred payment method has been accepted by the charity to avoid delays. A reminder for mid-December, for example, can help you not miss your deadline.

Recommended: What Happens if I Miss the Tax Filing Deadline

Take Advantage of Company Matching Programs

You might find a matching program at work that allows you to give charitably. For example, they might match your donation dollar for dollar up until a certain amount. It could increase the amount that you can afford to give.

It’s worth asking your HR department if you are unsure if your company has a program.

Redeem your Credit Card with Rewards

You might want to donate rewards from your credit cards such as airline miles or hotel points if you’re giving on a -budget. This is a great way for you to redeem points and other rewards that otherwise would expire. Many airlines, credit card companies, and hotels make it easy for you to donate your rewards to charities.

Donating assets from your Brokerage Account

You might consider donating assets from your brokerage accounts to a non-profit if you want to reduce your capital gains tax. It may be time-consuming and costly, but it can bring you the benefit of giving a surplus position that is outperforming.

You might be eligible for tax benefits and help rebalance your portfolio while helping an organization grow its assets.

Setting Up A Recurring Donation

By making a regular contribution, you can start next year off well. You might also be eligible to receive rewards by donating monthly to many organizations through your credit card. You won’t even have to think about the end-of-the-year giving next year if you start your donation plan now.

Keeping Good Records

You will need the receipts to prove that you can deduct the donation from your taxes.

Keep records of all donations. You will need to keep records of cash donations of less than $250. This could be a bank record, such as a cancelled check or bank statement, or a written acknowledgement from the charity that includes the date and amount.

A bank record is not required for cash donations exceeding $250. You will need to send the charity a written document with the date and the amount of the donation.

You will need to complete one or more IRS Forms 8283 if you make non-cash donations of $500 or more. You will need to obtain a written appraisal from qualified appraisers if the donation is more than $5,000. If the donation is more than $500,000., the appraisal does not need to be submitted to IRS. You can keep the appraisal if you are audited.

Talking with a professional

An accountant can answer your questions about tax laws and how they will affect your tax contribution. They can also help you make the best charitable donations.

Recommendation: Can 401k contributions be tax deductible? These are the Limits

The Takeaway

There are many reasons why giving can be a good idea. You can help a non-profit organization cover its operating costs for the year. Additionally, you can feel good about how you spend your money and may be eligible for tax deductions.

Giving can help you start the year off on the right foot. You might also consider opening an online account with SoFi if you are looking for ways to improve your financial situation, now or at any time.

You’ll get a highly competitive APY when you open a SoFi Savings and Checking account with direct deposit. There are no fees. These two perks will help you grow your money faster. These perks will allow you to save and spend in one place.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are general and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your circumstances.
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