We’re all pretty busy right now, but income tax season will be here before you know it. And as usual, you will want to claim every possible deduction so that you can lower your tax bill. Since most deductions will be taken for things you did during 2016, you have to act now in order to claim them in the spring.
That rule applies to charitable contributions in particular. If you want to claim them on your tax return, all contributions must be made by December 31. Follow these steps to help ensure that your gifts can be counted as valuable tax deductions.
Check out your charities. In order to count a charitable gift as a tax deduction, you must donate to an organization that is qualified by the IRS. You should also double check to be sure you aren’t accidentally donating to a scam organization! It happens more often than you might think.
Calculate your deduction limit. Of course, it’s admirable to give all that you can, but if you’re specifically hoping for a tax deduction, it can help to understand your charitable donations limit. For most of us, that is 20 percent of gross income if you donate to private charities, and 50 percent if you donate to public charities. However, the exact percentage of gifts that will count as a deduction will depend upon your tax bracket. Those who earn more money can count a higher deduction.
Save your proof. Remember, charitable donations won’t be counted if you don’t provide proof. Failing to save that proof could become quite problematic if you’re ever audited. So, get a receipt for all donations, and file them away with your other tax documents for three years. Remember to count the real market value of donated items, not the price you originally paid for them.
If you made your donations by credit or debit card, your statements are all the proof you need.
Make it easier next year. If all of this seems like a bit of trouble, you can set yourself up for easier tax deductions next year. Just establish automatic payments to the charity of your choice via credit or debit card. You won’t have to scramble to make last-minute donations next December, and your card statements can be used as proof.
If you have any questions about charitable donations as tax deductions, or any other financial planning questions, don’t hesitate to give us a call. We can help you with all aspects of your long-term financial planning.