How Your Charitable Donations Affect Your Taxes Positively
Charitable donations are wonderful ways to give and support movements and organizations whose missions we believe in; there is also the good feeling that comes with knowing that you are making good things happen for others through these organizations, but one thing that most of us ignore is the fact that our donations to charities are more than just ways to support causes we care about and positively impact your community. These donations can also positively affect your taxes. Charitable donations can reduce our taxable income leading to potential tax savings. This is why it is important to document our donations.
How to reduce your taxes with your donations
You must itemize your deductions on your tax return. This means that instead of taking the standard deduction, you would list your deductions on your tax return, including charitable donations. The total of these deductions would then be subtracted from your taxable income, reducing the taxes you owe.
To claim a charitable donation on your taxes, you must have documentation of the donation, such as a receipt or a canceled check. The donation must also be made to a qualified charitable organization, which includes most religious organizations, schools, and non-profit organizations focused on charitable, educational, scientific, or literary purposes. This way, you can be sure that your donations are going to a good cause, and it's also a way for the government to ensure that the donations are being used for the intended purpose.
It's important to note that there are limits to the value of charitable donations that can be claimed on your taxes. The limit is 60% of your adjusted gross income for cash donations. For non-cash donations, such as property or stock, the limit is 30% of your adjusted gross income. But don't let that discourage you! If you exceed these limits, you can carry forward any unused portion of the deduction for up to five years.
Another way to claim charitable donations on your taxes is through a charitable giving vehicle such as a charitable remainder or a charitable lead trust. These vehicles allow you to donate property or money to a trust, making payments to a charitable organization. You can claim a deduction for the present value of future payments to the charity, and you may also receive income or estate tax benefits.
Four things to remember about your donations and taxes.
To claim a charitable donation on taxes, you must have documentation of the donation, and it must be made to a qualified charitable organization.
The most common way to claim charitable donations on taxes is through itemizing deductions, which includes listing all deductions, including charitable donations, on your tax return.
There are limits to the amount of charitable donations that can be claimed on taxes. The limit is 60% of your adjusted gross income for cash donations. For non-cash donations, such as property or stock, the limit is 30% of your adjusted gross income.
Charitable giving vehicles, such as charitable remainder or lead trusts, can also provide tax benefits. These vehicles allow you to donate property or money to a trust, making payments to a charitable organization. You can claim a deduction for the present value of future payments to the charity, and you may also receive income tax benefits or estate tax benefits.
In summary, charitable donations can significantly impact your taxes by reducing your taxable income. To claim a charitable donation on your taxes, you must have documentation of the donation, and it must be made to a qualified charitable organization. There are limits to the amount of charitable donations that can be claimed, but don't let that discourage you. Also, you can use charitable giving vehicles such as a trust that can provide tax benefits. Making philanthropic donations helps the causes you care about and provides a way to save on taxes. So next time you make a charitable donation, keep in mind that it can have a positive impact not only on the community but also on your finances. At the Witness Foundation, we encourage our donors and community members to do this yearly and take advantage of these deductions.
