Charitable donations are a great way to increase your tax return while helping support altruistic organizations at the same time. However, how it impacts your return is not as simple as getting a dollar refund for every dollar you donate.
How are my taxes calculated?
In order to understand charity deductions, it is first vital to understand how your taxes are being calculated. Each year, the IRS determines the amount of tax you owe based on your income level and filing status. For simplicity, we will look at single filings for 2015.
|Taxable Income||Tax Rate|
|$0 to $9,225||10%|
|$9,226 to $37,450||$922.50 plus 15% of the amount over $9,225|
|$37,451 to $90,750||$5,156.25 plus 25% of the amount over $37,450|
|$90,751 to $189,300||$18,481.25 plus 28% of the amount over $90,750|
|$189,301 to $411,500||$46,075.25 plus 33% of the amount over $189,300|
|$411,501 to $413,200||$119,401.25 plus 35% of the amount over $411,500|
|$413,201 or more||$119,996.25 plus 39.6% of the amount over $413,200|
Here’s an example: If you made $45,000 in 2015, you would owe $7,043.75 in taxes. Notice that your income between $0 and $9,225 is taxed at a 10% rate, $9,226 and $37,450 is taxed at 15% and $37,450 and $45,000 is taxed at 25%.
Don’t forget that the IRS provides a standard deduction which is applied to your taxable income. For 2015, the standard deduction was $6,300. In this scenario, your taxable income would then be reduced to $38,700, making your taxes owed only $5,468.75. Charity deductions work in the exact same way as standard deductions. However, you may apply only one, either the charitable donation deduction or the standard deduction. In order for charity deductions alone to be financially beneficial to you, you must have donated over $6,300 in 2015.
This may sound like quite a bit of money required to make an impact on your taxes. However there are a variety of non-cash donations that may also be itemized deductions.
What types of donations are deductible?
Cash contributions will qualify only if made to a 501(c) (3) organization. The value of this donation will be in the amount of the contribution you made.
Non-cash charitable contributions to a qualified 501(c) (3) organization may be claimed at fair-market value. This is where you can get creative with your donations:
- Transportation expenses during volunteer work
- Vehicles – valued at the amount it is sold for by the charity
- Clothing and household items – valued at market value less any funds you may have received for the donation
What will I need to verify my donations?
Be sure to keep sufficient documentation of your donations. When filing, you will be required to provide the following:
- Proof of payment; whether it is by payroll deduction, voided check, bank statement or credit card statements
- Written acknowledgement from the organizations; including the name and address of the organization and the amount and date of the contribution
- For donations over $250 and non-cash donations, there are specific guidelines. Refer to Publication 526.
Can I combine my deductions?
Keep in mind, you may also leverage your charitable deduction by combining it with other deductions.
- Medical expenses – You may deduct your taxable income by the amount of your medical expenses that exceed 10% of your adjusted gross income; 7.5% if you are over 65. Refer to IRS Publication 502: Medical and Dental Expenses for qualified medical expenses.
- Home mortgage interest – The amount of interest paid on your mortgage loan, secured by your primary residence, may be deducted.
- Tuition – Depending on your income, you can deduct up to $4,000 for tuition. In addition to this, student loan interest is deductible. For more information, reference IRS Publication 970: Tax Benefits for Education
How can I make the most of my tax return?
Contact Apprisen to see how our certified counselors can help you make the most of your tax refund.
To schedule an appointment call 1-800-355-2227 or visit our website https://apprisen.com to chat with a representative.