Tax Saving Strategies: Choosing between Itemized Deduction or Standard Deduction
Only itemizing your donations on Schedule A along with Form 1040 will help your tax liability. Simply claiming the standard deduction will not factor your donations in your tax savings. Choosing Itemized deductions over the standard deduction counterpart is advisable only if your individual itemized expenses add up to more than the standard deduction amount. This should be accounted for if you need to know what amount of donation could help you save those tax dollars.
For example the standard deduction amounts in 2018 were as follows:
> $12,000 for individual filers
> $18,000 for heads of households
> $24,000 for jointly filing married couples
This means that if your individual Itemized deductions add up to a value less than the above mentioned standard rates, it is not worth itemizing your deductibles. Things like donations, a portion of Medicaid and social security, and property related taxes usually qualify as itemize deduction.
Tax laws are constantly changing so does your tax situation. Contact us if your tax situation has changed or will be changing so that we can properly guide you as per the updated laws.
Tax strategies for In-kind donations
If you choose to make donations in kind, such as in the case of clothes to orphanages or utensils to women self help groups, its best to ensure these are in good condition so you can value them fairly as per the market rates. To get an idea of these rates its best to survey a couple of leasing, thrift or pawn shops and ask around. In fact, there are some websites that host evaluation tools online that you can use as well. Yes, this does not sound like a very concrete rule but its best to follow this to stay on the safe side of filing returns for such goods.
For larger value donations like cars or even jets, your itemizable amount is limited to what the receivers get upon selling your donation. This can be documented by the charity on your behalf using Form 1098-C for your use.
Donations with return benefits
In some cases of charity, contributors receive a gift or a token of appreciation recognizing their donation to further encourage such acts. A common example is a charity fundraiser where organizations host a party that usually involve a return gift for all its potential contributors. In such cases, your deductible amount will either be the difference between your donation and the value of the gift you received or, it will be communicated by the organization to you.
Remember that even if in principle your gift to a non-profit qualifies as tax deductible, the organization that you donate to needs to be registered with IRS as a non-profit organization. Your organization’s IRS code can be easily looked up on the IRS exempt organizations list to see if your donation is indeed tax deductible.
You might also be interested in reading about CPA: Every small business’s requirement
A path to confusion free Personal Tax Return filing
It is also important to have a plan when you get into compassion and you are dealing with large amounts and numerous organizations so that you can keep track of what happens to your personal accounting and return filing. So what are you waiting for? Awaken the philanthropist in you and donate away to do good and reduce those dollars on your tax liability!