Charitable donations skyrocket during the last few months of the year. The holiday spirit instills the desire to give, as does the potential to receive some sweet tax breaks in return.
There are guidelines you can follow to help maximize your tax break during the charitable season. If you plan on donating during the last couple of months of the year, familiarize yourself with what to know about year-end charitable giving.
About Itemized Deductions
An itemized deduction is an expense that can be subtracted from your adjusted gross income. Itemized deductions can help reduce your tax bill, and they vary based on tax bracket and filing status.
Standard deductibles for cash donations are up to 60 percent of AGI. For 2020, however, you can deduct up to 100 percent of AGI regarding cash donations. This rate will not likely continue past the 2020 tax year.
2020 has multiple special circumstances. If you select the standard deduction instead of itemizing, you can still deduct up to an additional $300 in cash contributions. Deductions are not restricted to COVID-19 relief donations, and the $300 maximum applies per taxpayer unit, whether that’s single or joint. Documentation is required for donations of $250 or more.
Some companies offer leave-based donations that allow employees to contribute their unused vacation or personal time to assist COVID-19 victims. The donation does not get taxed if your employer makes the payment to a coronavirus relief fund prior to New Year’s Day.
It is important to note that the employer receives the deduction for the donation. You can not apply the leave-based donations to your taxes, but they do make a difference to those struggling during the pandemic.
Appreciated Securities Avoid Capital Gains
Capital gains must be included in what to know about year-end charitable giving. Capital gains tax is profit acquired from the sale of stocks, bonds, property, and other non-inventory assets.
Because there is no profit realized when you donate appreciated securities, you avoid increasing capital gains tax. Your deduction is then based on the fair market value of the real estate, mutual fund, or other appreciated assets you gift.
As long as you act before midnight of New Year’s Eve, your last-minute contribution can still count toward a 2020 deductible. Credit card or check payments are valid for deductibles even if they aren’t paid or cashed during the new year.
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