Charitable Contributions and Taxes
The end of the year is the season for giving, and giving to charity can be both rewarding to the charity and to you. Giving to charity is one of the best ways to reduce your tax bill while helping a cause you believe in.
One of the most effective ways to donate to a good cause is to give appreciated stock instead of cash. When you donate stock on which you have a capital gain, not only do you avoid paying taxes on the gain, but you still get to deduct the full value of the stock. In addition, the charity gets a valuable gift, and the money is exempt from taxation for qualifying charitable organizations. If you still think the stock is a good investment, you can always buy new shares in the company later on.
If you plan to donate to your favorite charity by check, be sure that the check is mailed out by the end of the year in order to have it count for the current tax year. As long as the check is mailed by the end of the year, it will count, even if the charity does not actually cash the check until after the new year.
Donating cars, boats and other property has been a popular way to donate to charity, but it is important to follow all the rules, including the need for extensive documentation on the value of the asset being donated.
Finally, it is important to remember that in order to get credit for charitable deductions you must itemize your deductions using Schedule A. If you simply take the standard deduction you will still get a warm feeling from your charitable giving, but you will not get a tax break.