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Your out there making charitable contributions and helping your community, but are you taking advantage of all the tax benefits these charitable contributions have to offer? When tax season comes around, you want to be able to get the most money back and all of the charitable donations you make throughout the year can help. Having a tax strategy for your charitable contributions will guarantee that you are getting the most back while having control over what charities receive your money. By taking advantage of a tax strategy when making your charitable contributions throughout the year, you will be able to save on your tax return while making a meaningful contribution. Throughout the year you find yourself making charitable contributions to your favorite charities such as tithing at your local church, dropping spare change into the Salvation Army buckets, or donating to your local food pantry. You are out there helping your community and giving where you can, but are you taking advantage of all the tax benefits these charitable contributions have to offer? When tax season comes around, you want to be able to get the most money back and all of these donations and contributions you make throughout the year can help. Having a tax strategy for your charitable contributions will guarantee that you are getting the most back while having control over what charities receive your money.
If you have a charitable contribution question that this post does not answer please contact our tax office.
I want first to point out that it is essential to make sure that you are giving to charities that mean something to you and not just blindly giving to get a tax deduction. Make charitable contributions to the right charity for you, the one that is going to mean the most when you write that check or donate those gifts. By giving to charities that you value, you will change the way in which you give, the difference it makes to the charity and the amount of money you have left over. Once you have selected the charity that is right for you, you need to give with the right tax strategy in mind. This will allow you to get the most for your donation to be able to provide to other charities or give more to that charity again in the future. It doesn’t matter whether that is tithing in your church, giving to a local charity, or a national charity. All of these charitable contributions may be used towards your tax return. How you apply these charitable contributions to your tax return can vary though, depending on what your tax situation is.
The most important thing to focus on is how you are giving. You need to evaluate how you are giving and whether that method of giving is beneficial for your tax return. If your method of giving is placing toys into a donation box or giving money to the Salvation Army as you leave the grocery store, then you are not using your charitable donations in a way that can benefit you. These generous contributions are significant, but they are not deductible because there is no way to track what you have donated. There’s no receipt for it. There’s no proof. You can still give to those causes, but there are other ways you can provide to them where you can document your donation for your tax return. You can go on to any of your favorite charities’ websites, and they will tell you how you can give. If your charitable donations add up to more than a $100, then you will get a receipt that shows the value of your contribution based on the money or value of the items you donated. This will ensure that you can use that charitable giving for tax deductions. You want to make sure that while your giving, you get those receipts so you can apply it towards your tax return come tax season.
Depending on your situation, you need to understand the difference between tax deductions and tax credits to know which strategy will benefit you the most on your tax return. Tax deductions use itemized lists and are great for those who are paying mortgage interest on their home, unreimbursed employee expenses or make a substantial amount of charitable contributions. The IRS provides more information on what qualifies as a tax-deductible charitable contribution. If tax deductions are right for you and you can itemize on your taxes, then it is vital that you get an itemized receipt for each donation. Sometimes you are in a situation where you can’t itemize. If this is the case, tax deductions might not be the best strategy for you. Tax credits are another great option for those who can’t use deductions on their tax return due to not having mortgage interest, not having enough other expenses to itemize, or not being able to itemize a charitable contribution. Missouri’s tax credits can provide up to 70% of your donation to be applied for a tax credit towards your return. However, most of Missouri’s credits are in the 50% range. For example, food pantries are listed as one of the approved tax credits. If you donated $100 to your local food pantry, they would then have to give you a form that documents that donation. You could then use this contribution to get credit in the form of $50 to use towards your tax return. If you owed Missouri $200 and applied that tax credit, then you would only owe $150. The main difference between a credit and a deduction is a deduction is going to come off of your income and then taxes are figured, while credit is applied directly towards the taxes that have already been calculated. Both of these options provide a way for you to make your money go further so that you can help more causes that are important to you.
The IRS requires that starting at the age of 70 ½, individuals have Required Minimum Distributions, or RMDs, meaning you have to make withdrawals from your IRA accounts.
Not everyone wants or needs this distribution to live on, but the IRS requires you take it out anyway. The IRS requires you to pay taxes throughout your life even after you have retired, by making you take distributions out to have a way to tax you and make you pay those taxes.
If you don’t need or want to use your RMD for living expenses, a great way to take advantage of the system is to make a qualified charitable contribution from your IRA accounts. You can go directly to your church or any other charities you contribute to, and it will never touch your tax return. As far as taxable income goes, it’s a fantastic way to do it. You can donate the money all at once at the beginning of the year, or you can give throughout the year. Either way is acceptable and will avoid paying taxes on that distribution. This allows you to avoid those taxes while providing support to your favorite charities.
While this may require some extra work, the time and effort are worth the money you will save. After you choose a charity that means something to you, get your financial advisor, an accountant, or tax professional involved to get the most out of your return. Whether you are making donations to your church or your favorite charity, there is no need to pay taxes on these distributions if you can take advantage of making a direct contribution from your IRA account to the charity of your choice.
Helping your favorite charities is a significant cause that can be beneficial for both the foundation and yourself. By taking advantage of a tax strategy when making your charitable contributions throughout the year, you will be able to save on your tax return while making a meaningful contribution.
Talk to your tax adviser about a charity that you want to donate to and see if you are going about it in the best way possible for everyone involved so you can get the best tax advantage and they can get the most use of your money.
Helping these charitable causes that you do, make a world of difference and makes the world a better place.
If you have any questions, please leave me a comment, and I will be happy to answer any questions you may have.
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