Donating to Charities: How it Affects Your Tax Rates

>> Friday, May 3, 2013

Paying taxes can really be a daunting task especially those who are living just above poverty line have no kids and do not own a house. Their bracket doesn’t qualify them as below poverty line so they have higher taxes. They do not have children or any property they can have deductibles. Some have taken to donating to charity instead so they can choose where their money goes.

Charities are able to claim gift aid on donations. They can claim back the basic rate of tax that has been paid on the amount of the donation. This is 20%. Higher rate taxpayers, though, pay 40% tax on earnings above the 40% threshold. With 20% going to a charity in gift aid these taxpayers can reclaim another 20% back, meaning they effectively pay less tax. They are able to give to a charity of their choice rather than pay it to the government in the form of taxation. 

Cash Gifts are Deductibles

To use such deductibles, you need to provide a written response from a genuine non-profit body, not just cancelled checks or credit card receipts. The IRS reserves the right to negate any charitable deduction not properly supported by the right documents. The acknowledgement should also state if you were giving any goods or offered any services, the value of which should be deducted from your donation. What's left is what you may deduct on your tax return.

Non-cash Contributions are Deductible

The policy is based on the fair market estimate. If the total value of the non-cash donations surpasses $500, you have to fill Form 8283, reporting extensively about the contribution. A different rule operates for vehicle donation and contributions above $5,000.

Volunteering Services and Time can be Deductible

Any expenses that are not refunded when you work as a volunteer can be regarded as deductible. You can claim this as long as you have the receipts and proclamation from the non-profit organization. In addition, the expenses you incur while you cater for a student living with you would qualify as deductible. When you use your car to work for a non-profit organization, you can also get a deductible on the mileage.

Donating an Old Vehicle

Giving out one's car to charity rarely qualifies one for more money than selling it off would have. However, it's far better to donate the car to a charity that will offer it to a person in need.

Donating time and items one does not use or money to charity is a wonderful way of earning tax deductions. Donating to charities has raised the suspicion that some increase donations to charity to avoid paying tax, or to pay less tax. They aren't personally better off by doing this but they are choosing where their money goes. They decide how it is spent, meaning the government doesn't.

Be sure to follow the laid down rules so as to optimize the deduction amount when donating to charity. The little time one spends familiarizing himself with these rules may result in a larger tax refund.

About the Author:
Martha Blythe is closely following the articles and speeches by
John Studzinski. She is an active volunteer in her NGO group and contributes to charity and church regularly.


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