As the year winds down and holiday cheer is in the air, many people start thinking about making charitable donations. Whether it’s the local animal shelter or a scholarship fund at your old school, giving to a cause that touches your heart can feel incredibly rewarding.
From early fall until December 31, it’s a prime time to dip into your bank account for a good cause. Not only does the organization benefit, but you also get the satisfaction of helping out and possibly lowering your tax bill.
Here are some key points to consider when planning your end-of-year donations:
– **What qualifies as charitable giving?**
– **Can you deduct charitable contributions?**
– **How much of a donation is tax-deductible?**
– **How can you maximize your charitable giving?**
According to the IRS, a charitable donation is a gift of money, property, or other assets to a qualifying organization, known as a 501(c)(3). To check if an organization is eligible for tax-deductible contributions, you can search the IRS’s database.
Remember, donations to political campaigns or parties don’t count as tax-deductible. Organizations that educate about the electoral process without bias can qualify, but they must remain nonpartisan.
In the past, only those who itemized their deductions could deduct charitable donations. However, the CARES Act temporarily allowed individuals to deduct up to $300, and joint filers up to $600, even without itemizing, for donations made in 2021. This provision expired in January 2022, so itemizing is now necessary.
The IRS sets limits on how much of your donation you can deduct, usually based on a percentage of your adjusted gross income (AGI). In 2021, you could deduct up to 100% of your AGI, but this has reverted to 50% for cash contributions and 30% for non-cash contributions in 2022.
To maximize your impact and benefits, keep these strategies in mind:
– **Timing:** Make sure your donation is completed by December 31 to count for the current tax year. Set a mid-December reminder to avoid last-minute issues.
– **Employer Matching:** Check if your employer matches donations, which can significantly boost your contribution.
– **Credit Card Rewards:** Consider donating credit card rewards like hotel points or airline miles.
– **Stock Donations:** Donating appreciated assets can help reduce capital gains tax and rebalance your portfolio.
– **Recurring Contributions:** Set up monthly donations to spread out your giving and earn credit card rewards.
Keep records of your donations. For cash donations under $250, a bank record or written acknowledgment from the charity is needed. For donations over $250, you’ll need a written acknowledgment. Noncash donations over $500 require IRS Form 8283, and those over $5,000 need a written appraisal.
An accountant can help you navigate tax laws and make the most of your charitable contributions. Giving not only supports nonprofits but also offers personal and financial benefits. If you’re looking to get your finances in order, consider opening an online bank account with features like a high APY and no fees to help your money grow faster.
Note: This article provides general information and is not intended as legal or tax advice. Consult your own attorney or tax advisor for specific guidance.