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Charitable Contributions: How to Maximize Your Tax Benefits
Helping your own fellow man during periods of suffering and hardships can be one of the most fascinating aspects of the mankind. We witnessed this compassion especially during the September 11th attacks, Asian Tsunami devastation, Pakistani earthquake and the recent hurricane seasons. The United States has been in the forefront of charitable giving with an estimated $248 billion raised last year with mostly coming from individual contributions.
Individuals usually feel extra charitable during the holiday season and the statistics prove that point with about half of the overall contributions coming during the months of November and December. While the greatest reward for donating to a charity may be in knowing that you have helped someone who is in dire need, your contributions may get you valuable deductions on your income tax returns.
The United States tax laws are designed to encourage such charitable giving by allowing the donors to deduct these contributions from their income taxes. For instance, if you donate $100 to a charity and your income tax rate is 33%, you eventually pay only $67 for the $100 donation ($100-$33 tax savings).
Which Charities to Contribute?
If you are planning to contribute to a charitable organization this holiday season, keep in mind that not all charities qualify for the special tax breaks. The Internal Revenue Services (IRS) provides a list of charities which are eligible to receive tax-deductible contributions on their website http://www.irs.gov/Charities-&-Non-Profits/Search-for-Charities. Out of all the eligible charities you can choose the charitable cause that you feel most strongly about and select couple of charities that work towards that cause.
You can do a little Internet research on your own and find out about the selected charities overall goals, programs and finances. After reviewing their finances, you can evaluate how the charities actually spend their money towards the underlining cause and what other expenses they have. You can obtain the above information from independent organizations such as GuideStar, CharityNavigator and Give.org.
How to Obtain Tax Deductions
In order to get tax deductions for your charitable contributions you have to itemize your deductions. This step is quite complicated and may require the assistance of a tax specialist if you are not too familiar with the tax procedures. Keep in mind that if you make a donation of $250 or more to a single charity, you must obtain an official receipt from the organization.
You can also obtain tax deductions for your non-cash contributions such as used cars, furniture, clothes, books and etc and might get a fair market value deduction for those contributions. For non-cash contributions worth more than $500, you have to file Form 8283 (Non-cash Charitable Contributions) along with your regular Form 1040. If you are planning to contribute a non-cash contribution worth $5,000 or more, you need to obtain a written appraisal from an independent appraiser.
Finally, if you are planning to volunteer for social work this holiday season you may be entitled for additional deductions from your income tax returns. Even though you are not eligible to get a tax break for the actual time you put in for your social work, the IRS allows taxpayers to deduct expenses related to volunteering, such as transportation and travel expenses.
Recordkeeping and Documentation
Keeping good records and documenting your charitable expenses is essential in getting your full deductions. Remember, the IRS do not take your word as proof of charitable donations, you need to provide various documentations to prove your generosity. If you contribute to a religious organization in form of monthly or annual dues, be sure to keep a detailed log describing your contributions and get a written acknowledgement from the institution. You should also keep copies of receipts, invoices, cancelled checks, bank statements and other documents relating to charitable contribution in case the IRS requires additional verification.