You may have reached a place financially where you can buy designer shoes and not sacrifice something else—or use credit—to get them.
You enjoy the splurge, but you have a guilty feeling that the money might have been better spent elsewhere. You make a resolution. If you have extra money at the end of the month, it goes to charity. You’ve heard about tax breaks, and that makes the idea all the more appealing. But where to start?
Think of It as an Investment
According to Kirk Chewning, “…giving with purpose means seeing the big picture. Where do you want to see your community in the next 20 years? How can your charitable giving make that vision a reality?”
What issues matter most to you? It may be tempting to spread the wealth across causes, but for your money to have the biggest impact, you should stick to one organization. There are sites like Charity Navigator and Global Giving that can help you find a reputable one, but try looking around your neighborhood and familiarizing yourself with local organizations. This has the added benefit of connecting yourself with like-minded people in your community and having a more intimate picture of the impact of your donation.
Know the Skinny on Tax Breaks
Most people go with a standard deduction on their taxes. Presets are in place and you don’t have to do anything. If you want to reap more benefits than just knowing you did a good thing, you’re going to have to itemize your taxes.
Depending on your life and situation, itemized deductions might be something you should be doing already. It’s not just charitable donations that can lead to tax breaks, but things like medical bills, interest on your mortgage, and self-employment expenses. Each come with their own rules, so read the fine print.
Just like with hot gossip, you need receipts. The IRS won’t take your word for it that you tucked five dollars into a tip jar, you need a tax receipt from the organization showing what and when you donated. There is also additional paperwork that comes with claiming itemized deductions, such as Schedule A of Form 1040.
Itemized deductions don’t always have better results than standard. It’s best to do the math before filing to see what option is best for you. If you feel frazzled, you may want to contact an organization that specializes in financial consulting to help you when it comes time to file.
Even if you’re filing separately, itemizing your deductions makes it necessary for your spouse, so you should both be on the same page before getting started.
Know the Charity’s Status
Just because you donate, it doesn’t mean you get a tax break. Does the charity qualify under 170(c) of the Internal Revenue Code? The easiest way to find this out is if they declare that they are 501(c) or 501(c)(3).
Even if you don’t get a tax break, it may be tempting to donate to smaller organizations that haven’t applied for tax exemption. But organizations that have that status have to adhere to certain standards of operation to maintain it. Donating to them is way less of a gamble.
Be kind, but also be mindful, and your donation will go far.