Donating to charity isn’t just a good thing to do, but it also allows you to enjoy several tax benefits. Traditional IRA owners can reduce their taxes by excluding their minimum required distribution from their gross income. This can apply to you if you donate to a government approved charitable organization. Not only are you able to help a good cause, but there are also benefits that come back to you!
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1. ‘Bunch’ your donations
The strategy of bunching your donations means planning the timing of your donations to increase the number made within a single year. This will help you to claim your tax breaks more efficiently. There are many financial institutions that can help you plan your donations in this way. Consider using a donor-advised account, as it will allow you to conveniently bunch all your donations. Just keep in mind that all of your charitable contributions are deductible from the taxes of that year.
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2. Qualified Charitable Distribution (QCD)
This tax break benefit applies to elderly citizens who donate to charities by withdrawing from their traditional IRA accounts. According to experts, elderly people can get higher deduction rates and still get tax breaks from their donation with QCD. All earnings and contributions that are collected in a traditional IRA qualify for QCDs and the qualifying age for QCD is about 70 years of age. Using this strategy can also benefit a traditional IRA holder who wants to change their account into Roth IRA accounts, as the QCD will reduce the taxable amount of money in their account.
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3. Lowering your income tax deduction
Gifting any sum of money to a qualified charity will entitle you to a contribution deduction against your income tax. To take advantage of this benefit, it is important to itemize your deductions. Therefore, when you show your donations, you’ll be able to claim a larger tax deduction than usual.
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4. Non-cash donations
You can also qualify for a deduction if you donate things like property, cars, furniture, or clothing. These donations must be items you have owned for at least a year, and the deduction will be equivalent to the market price of the items. You will not be taxed for any appreciation of the property, meaning that you can receive a deduction for a sum of money that you never reported as income for the specific year. The items must be in good condition for the IRS to allow possible deductions. To take advantage of this opportunity, remember to save receipts after making any donations.
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5. Donating appreciated assets
You can also donate appreciated assets such as mutual funds, stocks, or any fund that has grown over time. The asset must be owned for more than one year before you can donate it. Donating assets like these will reduce your gross annual taxable income. You can also claim a charitable deduction by recording that donation on your tax documentation. The most convenient way to donate appreciated property is to transfer it to a donor-advised account.
If you’re interested in the tax benefits of making charitable donations, be sure to conduct careful research or talk to a financial advisor to ensure that you are aware of all rules and regulations before making a decision.
