They say, “it’s better to give than to receive,” but there’s a way you can do both at the same time. A little transparency: We don’t mean engaging in any type of shenanigans that don’t benefit any charities; just that tax-deductible donations offer you, the taxpayer, a tangible value just as they offer a benefit to those to whom you donate.
What are Tax-Deductible Donations?
If you give to a tax-exempt organization, perhaps a charity or a church, whether it’s goods or money, these gifts can reduce your taxable income. As long as the giving is itemized in a tax return, specifically by filing Schedule A on a 1040 or 1040-SR, you can claim the deductions on your taxes.
What’s the Maximum I Can Deduct?
It can vary depending on how much income you make and what types of organizations you want to donate to. The rule of thumb is 60% of adjusted gross income for cash donations and 30% for property such as appreciated stocks and vehicles.
However, this percentage can be as low as 20% in certain situations, such as in the case of fraternities and veterans organizations, which require giving to be under the 60% threshold. Keep in mind that the CARES act gets rid of the 60% limit when donating cash to public charities, but the 30% limitation on property and stock remains in place.
For 2021, you’re allowed to deduct $300 of charitable giving and not have to itemize it (as long as you gave it in the form of cash). If filing jointly, couples can deduct $600.
How Do I Deduct the Charitable Donations?
If you want to maintain secure finances, you have to perform your deductions properly — the IRS likes it when you do things properly. If you’re going to claim more than the $300/$600 without having to itemize, you’ll need to:
Fill Out a Schedule A
This form will allow you to itemize your giving. If you don’t fill out a Schedule A when filing taxes, you can’t claim your charitable giving.
Budget Time
Budgeting your time and documenting all of your charitable giving saves time when you’re ready to itemize. Itemizing your giving will still be a lengthy process, but not nearly what it would be if you didn’t do this preparation in advance.
Budget for Tax Preparer
If you’re less enthused about the financial planning process, you can hire a professional tax preparer you trustto take care of it for you. It might cost a bit on the front end to hire someone to prepare the information, but if you’ve been giving a lot, you could receive enough to more than make up for this expense.
Remember that you have to donate to qualifying organizations and document everything. The IRS treats your charitable giving the same way that family members treat your claims that you did something spectacular: “pics or it didn’t happen.”
Hiring Mash Financial Planning: Doing Your Taxes Right
If you want to dive deeper into the best ways to save on taxes, schedule a meeting with Mash Financial Planning. We understand the nuances of tax deductions and charitable giving. Talk to Mash Financial Planning today and win at taxes!