While altruism is the primary quality that motivates people to donate and help those in need, did you know that the simple gesture of writing checks to your favorite charitable institutions can help in reducing your taxes?
Generosity indeed goes a long way, and the benefit of paying lower taxes is one of its most practical advantages that are surprisingly less known to most people. Fortunately, there are financial institutions, such as LOM Financial, that help clients identify such opportunities and execute tax management plans in the most strategic and beneficial ways possible.
Donating to charity through the organizations recognized by the Internal Review Services (IRS) can make you eligible for a reduced tax. In order to check if your chosen organization is included in IRS’ list, you may request their IRS determination letter or call the government agency’s hotline.
However, you have to take note of the following:
- Tax deductions are not honored if donations are given to individuals. These forms of donating include handouts to the homeless, pooled funds or collections to financially support a neighbor or coworker in need, or other victims of tragedies.
- Claiming a charitable deduction is only possible if you itemize these deductions on your tax return. You can do this by itemizing them on Schedule A found on your federal form 1040 (lines 16-19).
- Your donations will only be valid for tax deductions if it is substantiated by a receipt or a bank record where the name of the charity is clearly annotated.
- While volunteering services won’t give you the advantage of reduced taxes, the expenses acquired while performing your charity work will – unless they are personal in nature or reimbursable.
Most importantly, you have to remember that only charitable donations made in the same year are entitled to tax deductions.