Maximize Your Tax Savings With These Donations
The holidays are all about giving, and many people donate more of their time and money during this season than any other. Being a charitable person has many benefits, such as greater happiness, lower stress levels, and increased self-esteem. In addition to these benefits, donors can make their gifts tax-deductible.
Unfortunately, donating time isn’t tax-deductible, but plenty of other things are. Here are four ways you can donate that will help you maximize your tax savings.
1. Cash and Checks
The most common way charitable gifts are made is by cash or check. To deduct monetary donations, the taxpayer must have bank records or a written statement from a charity stating the dates of the donation and the amount. If you have made multiple donations during the year, they can be summarized on one end-of-year statement from the charity. Gifts must be made before the end of the calendar year to be deductible.
2. Appreciated Securities
Did you know that you can also give appreciated securities, such as stocks, bonds, and mutual funds? Typically, if a person sells these securities, then they will owe capital gains for that year. However, if the securities are donated to a charity, the capital gains tax will not be required, and the donor will receive a full charitable deduction. Because the charity is tax-exempt, they will not be required to pay the capital gains tax either. This method of giving can be beneficial for long-term appreciated assets because it removes the headache of figuring out the original value to calculate the capital gains tax.
3. Good-quality household items
Household items are also common donations, but they must be in good used condition or better to qualify for a charitable deduction. When donating goods, it’s important to remember that any donation over $250 must have a written receipt from the charity that describes the items donated. If the items donated are valuable, then an appraisal may be necessary to support the value of the tax deduction.
4. Donor-advised funds
Finally, if you are a person who can give a large dollar amount to charities, then a donor-advised fund may be more beneficial for you. Donor-advised funds offer an immediate tax deduction while allowing the donor to decide where the money goes later. This process is valuable because it will enable donors to make a large gift at the end of the year to take a tax deduction immediately, but does not require the donor to decide where the funds go at the same time.
To ensure that your gifts are tax-deductible, it’s important to keep solid archives of your charitable transactions, including recording descriptions of the items and obtaining donation receipts. An app such as Sortifyd can help make this process easy. Not only can you easily make a list of the donated items, but you can also add a photo of the gift receipt to the donation list, so you never have to worry about misplacing it.
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