Hard to believe but ‘tis the season – not to be jolly, but to start thinking about your taxes!
Yes, Tax Day isn’t until April 15, but there are many steps you can take in these waning days of 2016 to reduce your obligation to Uncle Sam, or boost the size of your refund.
Charitable giving is one of the best ways to cut your tax bill. It’s my favorite because it allows us to help others while helping ourselves. Here are six ways to give your way to a smaller taxable income.
Write a check
The money you give to qualified charitable organizations is 100% deductible from your taxable income up to 50% of your adjusted gross income if you itemize your deduction. Before you make a sizeable contribution you might want to check out the intended recipient on one of the philanthropy watchdog websites. They’ll give you an idea of how efficiently a non-profit operates.
Empty your closet
Donating clothes and other household items to charity can result in a tidy tax deduction. Contributions up to $250 require a receipt from the organization. Donations valued at between $251-500 require a receipt from the charity with the name, address, date, location and a list of items donated. If you are making a donation valued at $501 to $5,000, you must provide information about when you acquired the items and how much you paid for them.
Donate your car
There are two ways your old car might help a non-profit. They may sell your clunker, in which case your deduction is limited to what the organization gets for it. Or, the group might use your vehicle in its work, for delivering meals to shut-ins, for example. In that case, you can deduct the fair market value of the car or truck.
If you’d like to make a large gift, consider donating appreciated stocks or mutual fund shares that you’ve owned for more than one year. This is a tax-time twofer. First, you get to deduct the fair market value of the stocks on the day you donate them. Plus, you avoid capital gains tax on those shares.
You might also consider setting up a donor-advised fund, a sort of personal charitable foundation. The value of securities you place in the fund is tax deductible. You will eventually sell those stocks and use the proceeds to make contributions to your favorite non-profits.
Give to family – or anyone else
You can give up to $14,000 to as many people as you like without filing a gift tax return. This is a good way for folks in the 20 states with estate or inheritance taxes to reduce the size of their taxable estate over a period of years.
Share your IRA
If you are at least 70 ½ years old, you can donate up to $100,000 from your IRA to charity. Such gifts count as a required minimum distribution (RMD) but are not taxed like regular RMD withdrawals.
So, there you have it – a holiday gift basket of ideas to brighten the lives of others while easing your own tax burden. Tidings of comfort and joy, indeed!