You may have heard about tycoons such as Amazon’s Jeff Bezos and Microsoft founder Bill Gates making large charitable donations to various organizations both within the United States and aboard.
While their benevolence might engender a sense of altruism, the tax systems in America also ensure that these charitable contributions also bring certain tax benefits to the benefactor.
The aim of these tax breaks is to push those who have benefitted from the system to give back to community by offering them certain incentives that they might have otherwise lost via taxes.
How much is one entitled to deduct?
In most cases individuals are eligible to deduct up to 60 percent of their adjusted gross income through charitable donations. However, in certain cases the limit might be 20pc, 30pc or 50pc based on what type of contribution is being made and to which organization the donation is going to.
For example, contributions that are made to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations possesses a lower limit.
The CARES Act, which was introduced in 2020, eliminated the 60pc limit for cash donations to public charities.
How to claim these deductibles
You will need to itemize any donation you make by filling out Schedule A form along with the rest of your tax return.
However, it is also important that you weigh the costs and benefits ahead of time. If the amount on your standard deduction exceeds the itemized deductions, it would be prudent to abandon itemizing your donation and take the standard deduction instead.
Points to keep in mind
In order to ensure you actually qualify for these tax exemptions, it is imperative that you follow the guidelines laid out. In general the following points are worth noting:
- Donate to a qualifying organization, the tool on the IRS website provides a list of eligible organizations;
- Document your contributions;
- Expenses incurred while volunteering are also deductible.
Originally posted 2022-11-07 17:20:20.