Charitable Giving: How it Affects You Financially as Well as PersonallySubmitted by Neville & Associates on October 1st, 2020
The holiday season is just around the corner and many charitable organizations are in desperate need of donations to help provide the vital services needed in the community. You are most often inundated with a number of charitable requests towards the end of the year, which could be ideal time to take advantage of charitable giving from a financial standpoint.
Charitable Giving and Taxes
For many people, charitable giving provides them with either a tax break or a deduction depending on the type of giving. When you use your charitable giving for a tax deduction, you often will lower your overall taxable income, sometimes even dropping yourself into a lower tax bracket. How your deduction works will depend on the type of qualified charity, how your donation is structured, and the form that the donation takes.
Types of Donations
When you make a cash donation to a charity, the exact amount donated will be the amount that is fully deductible. Always remember to get a receipt if the cash donation is more than $250. If you choose to make a donation of a tangible asset, then you will likely be able to deduct the full amount of the item based on what they would currently be worth. In the event that you donate an asset not directly linked to the charity's mission, you will be able to deduct the lesser of what you paid, or what the item's reasonable value is.
While volunteering is a great way to donate to a charitable cause, you will not be able to use your time spent volunteering as a deduction. But you are allowed to deduct the costs of transportation or other expenses associated with your volunteer work.
Understand the Guidelines
The IRS sets very specific guidelines for allowing a charitable donation to be tax-deductible, so it is vital to know the limitations to prevent problems with your tax return. It is also important to remember that any donation of $250 from one charity will need to be accompanied by a statement from the charity that lists the amount of the deduction, what was deducted, and whether any goods were exchanged for the gift, which could reduce the deductible value.
Charitable giving not only provides you with a financial benefit but also provides you with comfort knowing that you were able to assist your favorite organization in their projects for the upcoming year. While the financial aspect may help you during tax season, the personal reward you will receive will stay with you all year long.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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