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Being charitable can benefit you from a tax perspective. Keep reading to learn how it works.
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The holiday season is upon us, which means a lot of people are feeling more generous than usual. If you’re feeling as though you’d like to give back in some way during the holidays, whether by donating money to a charity you support or passing gently used toys along to children in need, you may get a tax break out of it — even if your primary intent is to simply do good. So it’s important to keep good records of charitable donations you make.
Why not save money on your taxes?
When you write a $40 check to your church or give $50 to an animal rescue that does great work in your community, you may not be thinking of benefiting from a tax perspective. But if you itemize on your taxes, then donations to registered charities are considered tax-deductible. What this means is that they can shield some of your income from taxes, resulting in a higher refund or a lower tax bill.
So, let’s say you donate $1,000 to charity in 2023. The IRS won’t tax you on $1,000 of earnings, which means you’ll owe a bit less or get more money back when you file your tax return.
And it’s not just monetary donations you can deduct on your taxes. You can also deduct the fair market value of goods you donate.
Perhaps you donate a carload of gently used toys to a registered charity in your neighborhood. You can’t deduct the original value of those toys — meaning what you paid for them when they were new. But you can deduct their fair market value — what they’re worth today. Figuring that out isn’t so simple, so if you’re going to take a deduction for donated goods, it’s best to work with a tax professional.
In fact, any item you’re itemizing on a tax return, hiring a professional tends to be a smart bet. They can help you determine what deductions to take and make sure you’re claiming the right amounts.
You should also know that if you have a vehicle you really need to replace, donating your car to charity may be worth considering before you rush to sell it — especially if you’re looking at getting a small amount for your car. However, the rules of car donations aren’t so simple, either, which is why it pays to work with a professional if you’re claiming that sort of tax break.
Keep good records no matter what
If you’re going to be charitable, you might as well eke out some tax savings in the process. But one thing you must do is keep solid records of your donations in case the IRS comes asking for proof.
If you donate money to a registered charity via credit card, retaining your email confirmations and statements showing those donations is a good bet. And even if you donated via an app like Venmo, there’s usually a record of that transaction, so make sure to hang onto it.
If you’re donating goods, you may be given a physical receipt after you drop those goods off and they’re assessed. It’s always a good idea to scan physical receipts you might need for tax purposes, since they have the potential to get lost or degrade over time.
Nobody wants to pay the IRS more money than they have to. If you’re giving money to charity this season or in general, read up on the rules for claiming a tax deduction. Better yet, talk to a professional who can walk you through the rules and make sure you’re getting the tax benefit you’re entitled to.
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