In the midst of the holiday season, the last thing you want to think about is your income taxes. But since this is the season of giving, and charitable donations can add up to a valuable deduction on your federal income tax return, it makes sense to plan carefully now. Plus, you need to make these donations before the end of the year in order to count them on your taxes.
Do your research. Not all charities are created equally. Some are outright scams, particularly those that pop up at this time of year trying to take advantage of your good intentions. Others are legitimate charities, but might not spend the money as you would prefer. Ask to see spending reports for any charity that you are considering, or check their rating with the Better Business Bureau.
Learn the difference between tax-exempt and tax-deductible. As you research different organizations, you might hear these two terms. They are not interchangeable! A tax-exempt organization does not have to pay taxes on their earnings. This does not necessarily mean that your donations are tax-deductible. Make sure of that before counting upon a particular donation to help lower your tax liability.
Gather records now. If you collect your donation receipts now, you won’t have to scramble to find them when it’s time to file your taxes. If you’ve lost receipts, check your credit or debit card statements for proof of your donations. Highlight each donation and file these statements with other important tax information.
Learn about deduction limits. The higher your tax bracket, the more your donations will count as a tax deduction. Learn what to expect so you can max out your deduction. Also, keep in mind that you can give up to 20 percent of your gross income to private charities, but that amount increases to 50 percent for public ones.
Set yourself up for success in the future. If you found the above steps time-consuming, set yourself up for success next year. Set a budget for charitable giving, based upon your income and the tax deduction you want to earn, and establish regular monthly payments to your favorite charities via a single credit or debit card. Record keeping will be easier next year, and you won’t have to scramble to make donations in December.
15164 – 2015/12/10
