How giving to others helps you financially
Most people feel good about donating to charities or giving to others who are in need. The satisfaction of knowing you helped to make someone's life better is payment in itself, but giving to others can also help you financially. By donating money to charity, you qualify for a number of tax breaks.
What kinds of tax breaks are available?
If you qualify for charitable contribution deductions, the actual cost you end up paying to organization is reduced due to the money you save in the deduction. The amount you get back is dependant upon your bracket. Say for example you're in the 33% bracket and you donate $100 to a specific charity. With the tax savings of 33%, you actually only end up paying the charity $67. (Keep in mind that the charity still gets your full $100).
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What organizations qualify for a charitable contribution deduction?
Most organizations qualify for deductions. Contributions that don't qualify for a deduction include those to foreign governments or foreign charities and certain private organizations. As a general rule, you can deduct contributions from organizations are made for the use of qualified recipients. Typically, organizations that fall under this category include:
Churches or other religious groups
Tax-exempt educational organizations, hospitals, or medical research organizations and foundations
Government units or publicly supported organizations
Membership organizations that rely on the public for more than a third of their contributions
Are there limits?
There are the amount you can donate and still qualify for a deduction, but these limits are rather steep - if you spend more than 20% of your gross income on charitable donations, you have reached your limit, unless you're contributing to a public charity, and then the limit is 50% of your income.
Can I qualify for deductions on non-cash donations?
You can also qualify for tax deductions on donations that are not cash, such as donating clothes to the Goodwill or donating a car to the Salvation Army as long as they are, according to the IRS, in "good condition or better." Generally speaking, you can list the fair market value of the goods (such as property or a car).
If you're donating clothes or furniture, always get a receipt, otherwise your donation will not be deductible. Don't just drop off donations in the drop box.
While a tax advisor or accountant will be able to better help you with what tax breaks you qualify for, the following are some general guidelines:
A contribution is deductible in the year it is paid. Payment can be mailing the check itself, even if it isn't cashed until a later year. If a contribution is made on a credit card, the contribution is deductible the year it is actually charged to the card.
Document and save receipts. It's important to document everything and save receipts, especially on non-cash donations. If you've donated more than $250, no deduction is allowed unless you have specific documentation from the charity, so it's important to request receipts and documents and be sure to save them.
Donating to charities or those who are less fortunate is an honorable thing to do. It's also a financially sound thing to do, as giving to others can help you financially through tax breaks.
