When you donate money to charity, it not only can make a big difference in someone’s life, it can also reduce your tax liability by lowering your taxable income. Contributions are tax deductible only if made to a qualified organization.
Are you wondering how charitable contributions can affect your finances? Keep reading to find out how giving to charity can benefit your funds.
Individual Charitable Contributions
Managing your money can be daunting, especially if you aren’t used to having money leftover after your wants and needs are covered. A big question many people ask is, “How much do charitable donations reduce taxes?”
With the recent pandemic, this number has changed. The CARES Act that gave many Americans an individual stimulus check also changed the charitable donations tax deduction limit in 2020.
Are charitable contributions deductible in 2020? The simple answer is yes, but the CARES Act is a little complex.
Before the CARES Act, only people who itemized their deductions would get a tax deduction for charitable contributions. Now, you can donate up to $300 to a qualifying organization without having to itemize your deductions.
If you’d like to donate more, you’ll have to itemize your deductions on Schedule A. The CARES Act also increased the amount you can deduct on your taxes if you choose to donate more than $300. Deductions for charitable donations cannot exceed 60% of Adjusted Gross Income (AGI), although the CARES Act allows up to 100% of AGI for 2020.
To get a better idea of how much taxes you save when making charitable donations you can easily use any tax calculator. The amount of taxes saved varies depending on type and size of donation as well as your tax bracket.
You Need to Plan
The best way to take advantage of maximizing the tax savings of charitable donations is to do proper tax planning. This will allow you to take advantage of the largest deduction possible.
Large charitable gifts should be planned in order to maximize your deduction. For example, if you know that you will fall in a higher tax bracket next year, then possibly hold off until next year then postpone the donation in order to maximize the deduction.
Doesn’t Have to Be Cash
Cleaning out that attic, basement, or garage can be very beneficial.
Donations to charity also may include household goods, clothes, furniture and even vehicles rather than money. Your donation will be based on the estimated value at time of donation and is considered a non-cash donation.
Time to Give
Now you know how charitable contributions can affect your finances. It’s time to talk with an advisor to find out how you can give back and benefit from it next tax season.
The Financial Quarterback(TM) is dedicated to helping you plan out and manage your finances so that you can prosper, retire, and stay retired. Give us a call or send us an email and we’ll be happy to help you manage your money in a way that will benefit you the most.
