The 2017 tax season is probably the last thing on most people's minds during this busy holiday season. But these last few weeks of the year are your last chance to take advantage of tax benefits afforded by 2016 charitable donations.
It’s a good time of year to donate to your favorite causes anyway, since many charities find the holidays present their greatest time of need. And too, a little holiday spirit often inspires investment in our own communities – whether that means your own neighborhood, or the global community to which we all belong.
In addition to the gratification of helping others, charitable donations made before December 31 may be deducted from your taxable income in 2016 – and that can save you money when April 18, 2017 rolls around.
Of course, there are many rules when it comes to claiming tax deductions, beginning with the fact that you must file an itemized tax return. With that in mind, we offer these timely tips for taking advantage of tax deductions:
- Keep track of all receipts, even for cash donations. When you list a deduction for any amount, it must be substantiated with a bank record or dated receipt. While you are not required to submit this documentation with your tax return, you should have it available in case you are audited.
- Donations are only tax-deductible if they are made to qualified charitable organizations. Churches, synagogues and other houses of worship are usually qualified. If you are not sure about any group’s tax status, ask to see its letter from the Internal Revenue Service. You can also research organizations online using IRS Exempt Organizations Select Check, or another website such as Charity Navigator.
- You may receive a double benefit if you donate property that has appreciated in value. Normally, appreciated property is subject to capital gains tax, but there’s an exception when you donate it. So, in addition to providing a tax-deduction, such a donation may also help you avoid capital gains.
- Donate to charity via any payroll deductions offered by your employer. Retain a pay stub, W-2 Form or other documentation showing the total amount withheld.
- Set up automatic donations through online payment services offered by your credit union or bank. Such regularly scheduled donations are convenient, secure, and may enable you to give more to your favorite charity over time.
- There are limits on the deductions you can claim, so check with a certified financial planner any time you are unsure of which donations provide tax benefits.
Tax law is complex, so work with your tax preparer, financial advisor or attorney to make the most of your donations. Just remember that the best reason for charitable giving is to help others – and that is a reward in and of itself.