Charitable contributions of money and goods to organizations can lower your taxable income. Bear in mind that this type of deduction cannot be more than 60% of your adjusted gross income (AGI). But there are cases where limits ranging from 20% to 30% or even 50% may apply where necessary.
If your income is not sufficient, you can still find many opportunities to save money through donations.
Think about this…
- Charitable donations can support those in need and promote a worthy cause. At the same time, contributions can significantly reduce your taxable income.
- Eligible donations in the form of cash or items qualify as tax deductions. Remember to keep donation receipts for future reference.
- The total amount you can donate in a year is subject to some limits. But you can push forward the unused deductions provided that they are subject to eligibility.
Ways to Save On Your Taxes Through Donations
There are many ways to save on your taxes using donations. Here’s how you can save:
1. Plan Your Donation
When it comes to tax services, you need to think of better ways to save your income. That’s why you need to plan your donations to benefit from the most significant tax deduction.
First, make sure to hold off until later, when the deduction will be higher. Waiting until later is recommended if you anticipate having a higher tax deduction sometime in the future.
Also, think about giving out charitable gifts, as it will help you maximize the deduction while minimizing your out-of-pocket expenses.
2. Keep Receipts for Cash Donations
You should get a receipt for cash donations exceeding anything over $250. This receipt acts as a written confirmation of the type of gift you are giving away.
Internal Revenue Service( IRS) requires you to keep other records or canceled checks of smaller donations. Getting a receipt from a given charity when you make donations helps strengthen your tax records, primarily if the IRS comes to audit your business.
Make sure to set your record-keeping system straight at the start of each year and file every donation receipt in the same place to make the auditing work easier.
3. Give Out Household Goods
You can also save money by donating your household items to deserving charities.
Tax service providers allow you to donate household items at their estimated market value. In addition, many charities, such as church organizations, accept donations of household goods and clothing. These organizations resell those items to people that need them to raise some revenue.
However, rules that govern non-cash contributions are a bit stricter. In this case, you need to acquire a written receipt from a charitable organization for any non-cash donation you give out.
It is also recommended to prepare a detailed list of the goods donated and their value to enjoy significant tax services. An official appraisal is necessary for larger donations, including a detailed record and accurate information on all items.
4. Include Vehicle Expenses Incurred for the Charity Work
If you volunteer to participate in activities that help a charitable organization using your car, you can benefit from the tax deduction. Likewise, you can claim your voluntary services as a charitable gift if you have unreimbursed vehicle expenses.
Before you do that, ensure that you have well-maintained bookkeeping records. The records should indicate the total number of miles you drive in that particular year of your charity work. This record should include things like:
- The miles driven
- The dates of any of your trips
- The reason for your trips
Tax services allow you to claim actual expenses for all trips or 14 cents for every mile covered.
Obtain a well-written confirmation of your volunteer driving from the charity organization you worked with to make your tax deduction process easy.
5. Take Your Taxi Carryforwards Seriously
Sometimes you may not be able to deduct all of your donations in one year, particularly after hitting the maximum percentage of your taxable income.
If that is the case, you can opt to carry your charitable donations forward to a period not exceeding five years. Beyond this time frame, your carryforwards will expire, making it impossible to use them to save on your income tax.
Ensure to track your tax carryforwards carefully so you can use them up before their expiration. If you find yourself at risk of losing your balance carryforward, just hold back on your current year’s donations until you exhaust the older ones.
Final Thought
When you donate to a charity, you are simply helping someone enjoy things they may not have been able to before.
And when giving can also save you money on your taxes, who wouldn’t donate?
Your donations don’t have to be necessarily in the form of money. For example, you could also just donate your unwanted household items and clothing to get a tax deduction.
Keep these things in mind this tax season, and you’ll be saving money in no time.