Posts Tagged ‘tax deductible’

Why do you need to keep records of your charitable donations?

Wednesday, September 23rd, 2009

The government is prepared to award you tax deductions in return for your charitable donations, but it’s up to you to prove those donations were actually made. The IRS requires a great deal of documentation to ensure that all your donations are legitimate, so it’s essential to keep good records and make sure your chosen charities received everything you gave them. The specific requirements for tax deductions are as follows.

If your donation was money, you need to provide a credit card statement, canceled check, or bank statement that details how much, when, and to whom you donated, as well as written acknowledgment from the charity of how much you paid them and when. If your donation was more than $250, the acknowledgment letter should also include whether the charity gave you anything in return for your donation, and if so, the approximate value of the services rendered.

Property donations also get you tax deductions, but the records you keep have to be much more detailed. Every property donation can be tax deductible only if at least the following records are provided: the name and address of the charity, the date of the donation, a description of the property and its location, an estimated value for the property and how you arrived at that number, and the amount you want to be paid as a tax deduction. If the property is worth more than $250, there are even more rules:

  • For property donations from $250-$500, you also need an acknowledgment letter from the charity.
  • From $500-$5,000, you must document how and when you acquired the property, as well as how much it cost you.
  • If you estimated the property’s value at more than $5,000, you need a qualified appraiser to verify your estimate.

It’s important to keep records of all of the above, as well as any additional documents that can help prove you actually made the donation. If any piece is missing, you probably won’t get any money back.

A Tax-Deduction is…

Tuesday, June 23rd, 2009

A tax-deduction is any expense that can be removed from your annual reported income, which reduces the amount of taxable income (also called adjusted gross income). People usually talk about this as “writing something off.” For example, any money donated to a 501c3 organization can be subtracted from your annual reported income.

How can spending money save you money?

Wednesday, June 10th, 2009

No one likes having to pay bills, but some things that cost you money have a silver lining. When tax season rolls around, some of your expenses from the past year can actually help lower your taxes.

Everyone who makes money has to pay income taxes, which are generally higher the more money you make. But when the government figures out how much to charge you in income taxes, they use a measure called the adjusted gross income, which is an attempt to better represent the portion of the money you make that you actually get to use. For example, you may make $1,000 a month at your job, but that doesn’t mean you can actually put $1,000 in the bank at the end of every month: you’re spending at least some of that money on various things that the government views as tax deductible (or the amount you “adjust” your income by).

Tax deductible items are things like donations to certified charities, work expenses, and certain educational expenses. On the other hand, if you spend money on, say, an iPod or a pair of jeans, that’s money you could technically save, and you’re spending it for your own enjoyment, so it doesn’t lower your adjusted gross income. While tax deductible expenses usually don’t come from things you’d enjoy spending your money on, there is a consolation prize: those items you’re paying for now mean more money that’s yours to keep later on.

What does it mean when they say your donation is tax deductible?

Tuesday, June 9th, 2009

Philanthropy can do more than just aid a worthy cause; in certain situations, generosity can reward the giver as well. Giving to charity can actually reduce the taxes you have to pay, but there are special conditions that have to be met first.

When you donate to charity, you’re spending money, right? So no matter how much money you make, you now have less of it to use. But even though donating to charity means you’re using your own money in a way you choose, you’re not using it to buy new things for yourself, you’re using it to benefit a worthy cause. As long as you donate the money to a qualified recipient – a person or organization the government trusts to use that money effectively – you have the right to be rewarded for using your own wealth to help others. So your donation becomes tax deductible, which means you have a lower adjusted net income.

To put it simply, when you donate to charity, you’re really getting two benefits at once: you’re helping your chosen organization and you’re also reducing your own income taxes.