Now that most of the excitement of Black Friday and Cyber Monday has worn off, it's time to re-focus on the season at hand. It's more than just holiday shopping and getting great deals like the ones you find on Cheap Today. This is the time of year that we often focus on others, and on donating to help those in need. And while you can volunteer at the local food pantry or help with a Sub for Santa charity drive, it is worth noting that there are tax-advantaged ways to donate as well. While you don't want to let the fact that you don't get a tax deduction stop you from becoming a volunteer, you should also consider the tax implications of other types of donations. Here are three ways to get a tax advantage when you help others:
- Cash: If you itemize on Schedule A of your 1040 form, you can deduct the cash you donate to eligible charities. You can even get a deduction when you donate to your church congregation. You will, however, need a receipt to back up your claims. If you are audited and you don't have a receipt or a statement from the organization, you could be in trouble. Write checks so that you have your own records as you wait for a receipt. Make sure that you properly document your donations, via cash or check, in order to get your tax deduction.
- Stuff: You can also get a tax deduction for the stuff you donate to approved charitable organizations. Again, this is an itemized deduction that you need to document. Your donation is not valid unless you have a receipt showing the value of the donated items from the charity. Ask for a receipt from the charity. Whether you are donating items to the local children's center, the Goodwill, or some other approved charity, the things you donate can net you a tax deduction. Just make sure that you are donating items in good condition. Items in poor condition are not eligible for such a tax deduction.
- Investments: Few people realize that it is possible to donate investments to charities and reap tax advantages - but you can. And if you do donate an investment to charity, you will not have to pay capital gains taxes and you can deduct the full value of the investment. For instance, if you bought 200 shares in a company for $5 back in the 1980s, and now the shares are worth $10 (even after the recent stock drops), you won't have to pay capital gains taxes on the $1,000 increase in the value of the investment and you can deduct the entire $2,000. Donating a losing investment, though, has different rules. Instead of donating the investment directly, you might be better off selling the investment for the loss, taking the tax advantage for the loss and then donating the cash to a charity and taking the charitable donation deduction.
Of course, before you do anything, it is usually a good idea to consult with a tax professional (since I'm not one). Make sure you are following IRS guidelines and double check to make sure that you are getting the proper tax advantages. With a little planning, you will find that helping others is another way to help yourself.
-- Miranda
Image source: sxc.hu