By Kemberley Washington Forbes Advisor Staff Published: Dec 15, 2021, 4:35pm Published on December 15, 2021
Source: Forbes
Photo Source: Unsplash, The NY Public Library
Donating to charity can be a life-affirming thing to do—and as a bonus, it can help with your tax bill. If donating to charity is part of your tax plan for 2021, your deadline to make a tax-deductible donation is Dec. 31.
Here are a couple of tips so you can maximize your tax-deductible donation before year-end.
You Can Deduct Charitable Donations Even If You Don’t Itemize Generally, you only can claim a charitable donation on your taxes if you itemize your deductions.
This changed with the passage of the CARES Act, which allows you to deduct $300 (up to $600 if you are a married couple filing jointly) for a monetary charitable contribution, even if you don’t itemize your deductions. However, only cash donations qualify—if you donate goods to a local nonprofit, such as clothing or household goods, the donation won’t qualify.
This is a one-time deal, however, and only applies to 2021 taxes. Also, while it’s nice to have this above-the-line deduction, even maximizing this deduction is unlikely to lower your taxes by a big amount.
Before filing your return, get an acknowledgment letter from the charity (containing the organization’s name, amount and contribution date) and keep a canceled check or credit card receipt for your records.
Remember to check whether the organization is tax-exempt by searching the IRS Tax Exempt Organization Search Tool. To do so, you will need the organization’s employer identification number (EIN) or complete name.
Maximize Your Tax Deductions by Bunching Your Charitable Donations If you want to make the most of your giving and usually make charitable donations over $10,000, consider the bunching strategy, which allows you to “stack” your gift-giving in a tax year.
Let’s say you’re single and you would like to give $10,000 annually to your favorite charity. But since you don’t have any other itemized deductions, giving a gift of $10,000 wouldn’t qualify you to claim the full donation as an itemized deduction (the 2021 standard deduction for single filers is $12,550).
For the 2021 tax year (filed in 2022), the standard deduction amounts are:
$12,550 for single and married filing separate taxpayers
$18,800 for head of household taxpayers
$25,100 for married filing jointly or qualifying widow(er) taxpayers
This is why you should consider the bunching strategy. With the bunching strategy, you give $10,000 on Jan. 1, 2022 and another $10,000 on Dec. 31, 2022, which now allows you to claim the $20,000 gift as an itemized deduction on your 2022 tax return and may reduce your taxable income.
Donate Stocks, Not Cash, To Charities If you don’t want to donate cash before the year-end, consider giving stocks instead. Check if the charity you want to donate to has a brokerage account that’s set up to accept your donation.
Stocks are great to donate because they provide two major benefits. First, the amount of your stock donation is equal to the fair market value (FMV), which is what it can be sold for at the date of the gift. Let’s say you purchased a stock originally for $50 in 2019, but today the stock’s FMV is $500. If you decide to give the stock directly to your favorite charity, you would qualify for a tax donation of $500, its FMV.
Secondly, another great benefit is you won’t pay any capital gains. Typically, if you sell stock at a gain that you held for longer than a year, you would need to pay capital gain taxes. For 2021 and 2022, the capital gains tax rate is as high as 20%.
You can donation through Noble Knits & Crochets, but be aware that this is a common strategy at the end of year, so don’t leave it until the last minute. The donation will likely also require some paperwork to authorize the donation.
How much will you save this tax season? What are your investments? Why?
type of yarn are you using? Why? Shop our patterns and get started with your project(s) today. Send us a picture. It could be featured on our website!
Share your answers with the community by posting them below. Share the wealth of information with your friends or family by sharing this article with 3 people today. As always you are the best part of what we do. Keep sharing.