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Gifts and Charitable Donations
Under normal circumstances, we have to spend money in order to feel good. That’s just the way society works. However, there is a way in which you can actually feel good while saving money at the same time. By making donations of gifts or money to recognized charitable institutions, the government provides a facility for you to reduce your income tax bill. For example, if you pay tax at the 27.5% bracket, and you make a donation of 1,000 USD, then this will only cost you 725 USD, with the difference of 275 USD being used as a deduction against tax. The higher the tax bracket, the higher the saving. Higher earners in the 39.1% bracket will save nearly 400 USD in tax for the equivalent donation of 1,000 USD.
Payment to charities is regulated. The charity itself must fall within the list of qualified charities recognized by the government. These exclude foreign governments, charities or private institutions. Although they may be deserving of the help, needy individuals are also excluded from the qualified status.
One further advantage of charitable tax deductions is that the deductions are available in the year that they are paid. As soon as you write the check, then you’re entitled to the deduction. Paying by credit card is even more advantageous. Your deduction is due the minute you make the payment, even if pay off your card months ahead in the future.
One other tax deductible option is through the charitable donation of real estate. If you have owned a piece of real estate for more than one year, any you donate this to charitable cause then there will be no tax due on the capital appreciation over the previous 12 months.
Finally, don’t forget to collect a receipt for any charitable donation you make, even if the donation is in the form of goods or clothing. You will need this documentation when you make your tax report at the end of the year.
So, while we all know it’s better to give than to receive, now you know that through charitable donations you can give and receive at the same time.
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