They say it’s better to give than to receive, but, really, it’s better to give and get something back. If you play your cards right, your largess can come back to you in a way that goes beyond warm and fuzzy feelings.
When you follow the rules of proper tax deductions for your donations, you can take your generosity to the bank — or at least reduce your tax liability. Here are four great ways to get a little back when you donate before the end of the year:
1. Cash/Check Donations
When you give cash to a charitable organization or write a check, you can deduct that when you itemize your taxes using Schedule A of Form 1040. However, there is a catch. You should be able to substantiate your donation with proof, in case of an audit. Many organizations automatically send you a receipt when you donate, but you may have to ask some for this service. Keep track of donations made to your church congregation as well. If you don’t get a receipt, at least keep copies of the canceled checks, or keep the credit card statement showing the donation, as documentation.2. Stuff
You can donate stuff to local approved charities and take a deduction for the value of the goods. You can even donate your car. Some charities will estimate the value for you, and at others you are required to estimate the value yourself. In either case, you need a receipt from the organization showing the value of the items donated. You can only deduct items that are in good, usable condition. Additionally, you can only deduct the current value of the objects, and not what you paid for them originally.
One great way to donate is to do so through your investments. You can donate a stock to charity and get a deduction for that. Plus, you avoid capital gains taxes on whatever you earned. Say you bought 100 shares of a stock 20 years ago at $5 each (total value = $500). Two years ago, those shares where worth $15 each, but now they’re only worth $10 a share (total value = $1,000). You decide to donate the stock to charity. You’ve still made a gain of $500, though. If you sell the stock, you’d have to pay capital gains tax on that money. If you donate, you are exempt from the tax. On top of that, you can deduct the $1,000 current value of the stock.