One aspect of business that entrepreneurs everywhere must understand is how to divide their financial assets. If you expect to increase wealth, then you need to learn how to spend it properly. It might sound counterintuitive but spending money the right way can actually increase the amount of money that ends up in your pocket throughout the year. One of the best ways you can optimize your financial assets and that of your business is through charitable donations.
Although tax season ended a few months ago, you should constantly consider the ways your expenditures and income impacts your bank account. There are a variety of ways you can receive tax-deductible expenses and reduce your taxable income, including charitable donations.
From a financial planning perspective, charitable contributions should be on your radar throughout the year. Even the Internal Revenue Service (IRS) thinks giving is better than receiving. The revenue service gives those who give to qualified charities receive a tax break, lowering your tax bill.
However, if you plan on adding charitable donations to your tax form this year, there are a few guidelines to follow. Here’s how.
Guideline for Claiming Charitable Donations
Before you start using charitable contributions to reduce your tax bill, there are a few rules the IRS imposes on taxpayers that you should consider.
- Contributions must be paid in cash or property. All donations must actually be given before the end of the tax year (this does not include any pledges or promises to donate).
- Donations must be made to a qualified tax-exempt organization. Only contributions given to charities with a 501©(3) tax-exempt status are qualified for tax deductions. However, some organizations, including religious organization, are not required to obtain status from the IRS, meaning your contributions to church organizations reduce your taxable income come May of the following year. You can learn more about qualified organizations on the IRS website.
- Contributors must keep a record of all donations. The IRS are big proponents of book-keeping. In order to meet all recordkeeping requirements, you must indicate the name of the organization, date, and amount given. This also includes saving canceled checks, acknowledgment letters, and value appraisals of donated property.
How to Claim a Tax Deduction
Keep a record of all of your donations given to charitable organizations throughout the year. You can do this by keeping bank statements, canceled checks, written documentation, or written letters of acknowledgment and receipts from the organization.
You can then claim all of your tax deductions for charitable contributions on Schedule A of Tax Form 1040. Schedule A also includes all of your eligible itemized deductions so that you can transfer the total to your tax return. Other possible itemized deductions include medical and dental expenses, insurance premiums, and home mortgage interest.
Note on Book-Keeping: Charitable donations of $250 or more require more book-keeping. If you don’t have a written acknowledgment from the charity to document your gift, the IRS may disallow the tax exemption. If you make more than one contribution over this amount, you’ll need a separate acknowledgment for each contribution, or the acknowledgment must list each donation in detail with the date the donation was made.
Forms of Charitable Giving
There are various ways of giving to a qualified charity. These include:
Cash Donations: Cash is typically fully deductible for the exact amount given.
Tangible Assets: Property given to a charitable organization have to be able to substantiate a fair market value. For example, the old clothes given to the Salvation Army are deductible based on the item’s current worth. If the donated property has nothing to do with the organization’s mission, you are allowed to deduct the amount you paid for it or the item’s reasonable value, whichever is the lesser of the two.
Appreciated Long-Term Assets: Most long-term assets are deducted on their full fair market value. However, these donations are limited to 30 percent of your adjusted gross income (AGI).
Volunteering: While you cannot deduct time spent volunteering, you can deduct transportation costs and other related expenses.
Where to Donate
If you are considering donating to a charitable organization, here are a few of the top choices among veteran charities according to CharityWatch.org, an organization that ranks the military and veteran charities based on their merit using an A-F scale.
- Armed Services YMCA of the USA (A)
- Bob Woodruff Family Foundation (A)
- Fisher House Foundation (A+)
- Gary Sinise Foundation (A)
- Guide Dog Foundation for the Blind (A)
- Homes for Our Troops (A)
- Hope For The Warriors (A)
- Intrepid Fallen Heroes Fund (A-)
- Mission Continues (A)
- National Military Family Association (A)
- Navy-Marine Corps Relief Society (A)
- Operation Homefront (A-)
- Semper Fi Fund (A+)
- Team Rubicon (A-)
- Tragedy Assistance Program for Survivors (A)
- Wounded Warriors Family Support (A)
You can also contribute to Warrior Rising, which is not currently rated by CharityWatch, but has tax-exempt status and is presently listed on Charity Navigator. Warrior Rising empowers U.S. veterans and their immediate families by providing them with opportunities to create sustainable businesses, hire fellow veterans, and earn employment.
Learn more about Warrior Rising and how to donate to U.S. military veterans by visiting our website today.