One of the best ways to reduce taxes is by donating to charities. You save money on your taxes by writing off some or all of your contributions on your tax returns, benefiting you and the charity. Giving to a cause dear to your heart also supports what you are passionate about, like the homeless. According to Policy Advice, it is estimated that, out of every 10,000 persons, 17 are homeless. So, by donating to help the homeless, you can simultaneously do good in the world and reduce your taxes. However, there is more to charitable tax credits than that. Here, we will go into detail about how you earn a charitable tax credit and how it works.
The Minimum Donation Required to Earn a Charitable Tax Deduction
Giving to charity only lowers your tax burden if you decide to itemize your taxes. You should generally itemize if your projected deductions, including charitable gifts, equal more than the standard deduction. Throughout the year, keep track of your donations to charity and consider any other possible deductions. When it comes time to file taxes, most people choose the greater deduction, either standard or itemized.
What Can You Take a Tax Deduction For?
You must forego the standard deduction in favor of itemized deductions in order to deduct money donated to charity from your taxes. This implies that you will mention all your deductions in the hope that they will exceed the standard deduction.
The following expenses qualify for a tax deduction:
- Mortgage interest
- Local and state taxes
- Charity Donations
- Dental and medical costs
The Maximum Amount of Your Tax Deduction Used for Charity
Generally speaking, you can deduct up to 50% of your adjusted gross income, although 20 percent and 30 percent apply in some cases when you make a monetary donation to a qualified charity, according to the IRS. Appreciated assets, including long-term appreciated stocks and property, are often deducted at fair market value. Appreciated assets are equivalent to 30% of your adjusted gross income if you have owned them for more than a year. To increase the amount you can claim as a charitable tax deduction, it may be tax-efficient to combine multiple asset types.
Necessary Requirements for Claiming a Charitable Tax Deduction
If you intend to claim your charitable deduction after deciding to donate to charity, consider the following steps:
- A 501(c)(3) public charity or private foundation should be a non-profit organization.
- Maintain a donation record (usually the charity's tax receipt).
- You may need to obtain a qualified appraisal for a non-cash donation in order to support the amount of the deduction you're claiming.
- Prepare your documentation, itemize your deductions, and submit your tax return.
Before donating, remember that a minimum gift may be required before a charity provides a tax receipt. Some organizations will only issue receipts for contributions exceeding $25, while others might do so for donations as low as $10. First, confirm with the charity.
While you can donate money in someone else's name, you cannot give them the tax receipt to use for tax reduction. Talk to a tax expert, like Catholic Charities, to learn how you can enjoy tax reduction when you contribute to charity.
