December is here! It is time for holiday parties, families, friends and all types of celebrations - and loads of eggnog! Not to be lost in the shuffle is the end of the year rush for tax deductions and the easiest tax deduction of all: charitable contributions.
Donations are a great way to reduce your tax liability as your donations are deducted and reduce your taxable income.
According to a recent Chicago Tribune article, “About 65 percent of Americans with incomes less than $100,000 give to charity, and 98 percent of the wealthy do.” I always tell people, “If you want to be wealthy, do what the wealthy do.” GIVE!
With the economy the way it is, charitable requests are everywhere and the need for donations is great. Incomes are slashed, people are laid off, and now is a time for those with extra income to receive the tax benefits of giving while helping the needy.
Your gift of cash or property must meet certain rules in order to be tax-deductible. First, you need to actually donate the cash or property. Your intentions don’t qualify you for the deduction. I sometimes hope that my intentions will fly with my family or co-workers. “Guys, I intended on shoveling the snow - I intended to give you a raise this year... ” But, that doesn’t work with them and it doesn't work with Uncle Sam!
Second, you must donate to a qualified organization. The charity must be a 501(c)(3) organization, which typically include churches and other organizations. The IRS provides a more thorough guide to determining qualified organizations. I wonder if I can make my retirement a qualified organization? I promise I will help others with the money!
Third, you must itemize your deductions. In other words, you are donating or spending more in other categories that total more than the standard deduction (you use Schedule A).
Finally, you need to keep records. Most charities will send you an end of the year statement that shows your receipt of your donations. All donations by cash or check (or debit or credit card) must have a receipt to receive the deduction.
However, if you made a donation on a one-time basis then it may make sense to keep canceled checks or appraisals for donated property in the event that you don’t receive a letter from the charity.
Don’t confuse charitable giving with donations to non-qualified organizations or individuals. The following are not tax deductible:
- Political parties
- Individual people in need
- Contributions to labor unions, chambers of commerce, or business associations
- Contributions to for-profit schools and hospitals
As you enjoy a few cocktails this Holiday Season, think about ways that you can make a difference. Find a charity and make sure it is meeting its mission. Make a donation and feel good that you are helping people and helping yourself at the same time. For additional information, check out IRS Publication 526 or visit with your local liberty income tax preparation office.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.