Year end is an important time for taxpayers to make adjustments in their incomes and assets so as to ensure that they maximize on tax savings. Since a tax year is from January 1st to December 31st of any given year, adjustments done at year end can nullify or reduce the impact of transactions done earlier in the year. One of the moves that can have a tax implication and that can be done at year end is donations. There are many reasons as to why to make a donation before year’s end.
Increase Deductions Threshold for Itemizing
You may consider making a donation to get your deductions to the itemization level. For you to itemize your tax deductions, the deductions will need to be above 2% of your Adjusted Gross Income (AGI). Therefore, to get your deduction to this threshold, you can make a donation of the difference. Using itemization as opposed to taking the standard deduction, can get you more savings on your taxes.
Donate Appreciated Assets
Another tax plan move that you can make before the year ends is to donate assets that have significantly appreciated in value and that you want to dispose. Assets that have appreciated will attract a high capital gain tax as the tax is calculated on the appreciation. On the other hand, if you make a donation, the donation deduction is taken at the current market price and thereby, giving you a hefty deduction.
Donate to Support a Cause
Besides donating as a means of tax planning, you may also make a donation to a charitable organization that supports a course that you are interested in. Since the economic recession of 2008, the donation levels have significantly plummeted. This reduction has happened understandably as many Americans have found themselves with less income or no income since the recession. Furthermore, those who have retained their incomes have also become more conservative with their donations as the financial future remains uncertain. On the other hand, the need for charity has also gone up over the same period. The period between 2008 and today has seen many people go into financial hardship and require financial assistance. Furthermore, there have been many weather related disasters within the same period that have called for many charities to assist with food and shelter related aid. This disparity between donations and charity needs has led to a huge gap. For this reason, there is a fresh call to taxpayers not to relent in the American culture of giving to charities for a good course. This is definitely a good reason to consider donating even before the year ends.
Ensure the Charity is Tax Exempt to Claim Deduction
Whether you are making a donation purely for supporting a good cause or as part of your tax planning, ensure that the charity organization you are making a donation to is IRS tax exempt and compliant under the IRS rules of Section 501(c)(3) organization. The IRS lists all organizations that are exempt on their website and you can counter check before making a donation. Donating to such organizations ensures that your donations are well accounted for and that they will accord you a tax deduction.
