What are the possibilities of deducting your contributions to charities?
Do you donate to charities? If so, you may be allowed to use those donations as deductions on your income tax return. It is actually the government's way of encouraging or enticing citizens to donate. In fact, any time there is discussion about changing the percentages versus income, the charities themselves become worried that people will not donate as much. And when monies are needed for natural disasters, one of the biggest draws to donating, aside from being a humanitarian, is the fact that the donation is tax deductible, provided it went to a registered charity. So when you ask what are the possibilities of deducting your contributions to charities, the answer is most probable.
What is quite unique about the tax system and charitable contributions in the US is that not only does cash count for deductions, but so do goods, property, cars and other items if they are given according to the IRS rules, and the proper paperwork is filed. Consequently, there is good reason to donate if you can. In the case of second hand goods that you have around your home, as long as they are in working condition, and considered to be good quality, the value of the goods is allowed as a deduction. The full retail price, of course, is not the value, but whatever the items are being sold for in thrift stores is the value they are worth for a tax receipt.
In order to qualify for the deduction, the individual must itemize all donations on Schedule A – Form 1040 from the IRS. Each item must have proof of payment through a canceled check, receipt from the charity, credit card receipt, bank statement, or telephone statement in the case of text contributions. The charity to where the funds were donated must be registered and listed in Publication 526 from the IRS. Donating or helping solitary persons does not count as eligible charitable deductions regardless of why they solicited the money and how they used it. Real charities are for the benefit of the common good. Similarly, pledges are not tax deductible. You must have actually paid a charity and have proof of payment to use the donation as a tax benefit.
Further, there are several organizations to which you might send money, but these are not eligible for tax-deductible contributions. Examples include labor organizations, political parties, chambers of commerce, professional and trade organizations, and fraternities. You may, however, be able to claim these as expenses on your Profit and Loss if you own a business, but they are not charitable deductions, and you should not expect that they will be approved when your tax return is reviewed.
Additionally, you are not supposed to benefit from your deduction, other than the standard tax-deductible contribution. This means that you cannot donate funds with the sole purpose of receiving something tangible in return. And, if you do receive items such as tickets to an event or candy, the amount you receive on your receipt will not be the amount you paid. You are only permitted the difference between the price that the charity paid for the item and the price for which it sold the item. That differential is your contribution to the charity. By law, any contribution over seventy-five dollars, the charity must be provide a statement or receipt.
As stated earlier, you are permitted tax-deductible contributions for assets that you donate to a qualified charity. These assets may include property, vehicles, planes, boats, working appliances in good condition, patents, stocks and items from a business. Each category has its own set of rules to determine the receipt value for the deduction, so it is necessary to read the documentation from the IRS, and to obtain the correct forms for each deduction. You are not permitted, however, to deduct appraisal fees or any other fees that you may incur while trying to research and determine the value of the items. The tax-deductible portion is specifically the current value of the item in relation to other like goods. Again, the other expenses may be considered business expenses on financial statements.
The IRS also has rules governing the limits on contributions. For example, monetary gifts of more than two-hundred and fifty dollars are treated differently than donations of ten dollars. There are more forms to complete depending on the limits, and also whether or not any amount is permitted to be carried over from the previous reporting year.
Moreover, generally speaking, you are not permitted to claim more than fifty percent of your income as tax-deductible charitable contributions. This does not mean that your income is reduced by fifty percent. You might only qualify for a reduction in taxes by fifteen percent, but you are not permitted to use more than fifty percent of your earnings as part of the calculations. So if you earn $20,000 in a calendar year, and you are permitted tax-deductible contributions of $10,000, your actual reduction in taxes is only $1500 or fifteen cents on the dollar. Of course, all of those deductions need to be clearly documented to qualify.
If you earn a high enough salary that you use charitable contributions as a financial strategy or tax management structure, then it is wise to both consult a tax accountant, and also to calculate different methods of reporting to the IRS. You may find that making a donation may go further in reducing taxes, than by investing in something and saving for the future. Some computer programs already exist to do "what if" scenarios, but you can also quickly and easily create your own systems in a simple spreadsheet. It is definitely worth the time to run the numbers and see which contributions benefit you the most. Plus, the accountant might make you aware of donations that you never expected nor realized where eligible as tax-deductible contributions.
As you can clearly see, the possibilities of deducting your contributions to charities are diverse. While there are strict limitations in place, and you must document everything you donate, there is a good chance that your humanitarian spirit may be rewarded in other ways than just feeling good. There are the distinct possibilities of deducting your contributions to charities and paying less income taxes.
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