Some charitable contributions are 100% tax deductible, while others you can't deduct from your taxes. If you want to maximize your tax savings through charitable giving, it's important to know which type of giving may translate into tax savings.
Tax savings likely isn't your only motivation for the charitable giving you already do. Giving back to an organization to help them further their mission should be the primary reason you give while saving on your yearly taxes is an added bonus.
It's also important to remember the amount you save in taxes will never exceed the amount you're giving. Charitable giving will not eliminate what you owe in taxes but will help to lessen your tax burden.
Giving to a qualified organization can allow you to deduct 100% of the amount you gave. Qualified organizations include non-profit schools, hospitals, religious organizations, some government organizations and other entities established for charitable purposes.
Ways You Can Give
There are limits on the amount you can give. For cash, that is usually 60% of your adjusted gross income (AGI). For example, if you make $100,000, you can give $60,000. The limit for investments or capital gain assets is 30% of fair market value or 50% of your AGI at cost. These are long-term gains. But be aware that there are conditions for capital gain assets.
You can also give assets or investments that you've held for less than a year (short-term gains). These assets are ordinary income assets. The limit is 50% of your AGI deducted at cost. For giving purposes on short-term assets, fair market value does not come into play.
Other property that doesn't fall into the above categories, such as clothes, automobiles and even investments you currently have a loss on, is limited to 50% of your AGI and deducted at fair market value.
What happens if your giving exceeds these limits? In that case, the IRS allows you to carry forward the amount above your annual limit. This carry forward limit applies for five years. Meaning, the amount carried forward can apply to deductions in later years up to the annual limits.
Different Ways To Give
How you might give will vary by charity. Check with each organization to see how they accept donations. Some charities work with payrolls, which allow employees to donate directly from their paycheck. You can also set up automatic donations from your credit card or checking account.
Any charitable giving is appreciated and one way you can help give back to your community. And since giving can help reduce your tax burden, there's no reason not to give.
Contact the office to make sure your contributions have the best chance of generating tax savings.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
Reduce Your Tax Burden With Charitable Giving
December 01, 2021