Every year, clients ask “How can I lower my tax liability?” One of the best ways is by taking advantage of something you’re already doing: charitable contributions.
First, make sure your charitable contributions are actually deductible. This can be done by checking with your tax advisor or by finding Schedule A attached to your tax return. Then, consider these tips:
Giving gifts to clients or staff? Don’t gift too much or you may have to issue the recipient a Form 1099-MISC at year-end, making the value of the gift taxable to that person. What about the hard-to-buy-for family member or friend? There are only so many Starbuck’s or spa gift cards you can get away with. And what if you don’t want them to know the value of the gift? Why not make a charitable contribution in their honor? I, once, adopted a zebra for a family member. My daughter had fun choosing the appropriate animal and a gift package was sent to the recipient. (And I got a tax deduction, but that’s beside the point…) There are many organizations that allow contributions to be made on behalf of a 3rd party and will send a card to that person acknowledging the gift. Be sure to research the organization thoroughly before contributing.
One highly cringe-worthy moment during tax season is when I hear the words “Planet Aid”. Not because they aren’t a great organization providing a great service to people in need. Simply because the yellow boxes don’t hand out receipts for donations made. The IRS now requires a receipt for all noncash contributions. Maybe it’s worth the drive to Salvation Army or Goodwill or another organization where someone will help you carry your bags and hand you a receipt to finalize the transaction. It is then up to you to determine the value of the items you’ve unloaded.
3. Disaster Relief
With all the National Disasters and economic disasters of late, we all know a family or individual who could use a little extra assistance. And we’re not normally thinking of a tax deduction as we rush to help. But, if we are… try contacting a local nonprofit, church, or school to setup a fundraiser. Donations are only tax deductible when made to a qualifying organization, not to an individual. It could take a little extra time to jump through the hoops of providing relief but the organization can help cast a wider net and land some additional donations.
4. Yard Sales
As we start to have our summer yard sales, consider giving a percentage (or all) to a charity. This is not only a great marketing strategy that gets more foot traffic, but buyers are more likely to spend if they know the money is going to a good cause. Get the kids involved too! A bake sale or lemonade stand can bring in extra cash that the kids can hand-deliver to a local charity. What better lesson to teach our kids? (Just be sure they get a receipt. In your name.)
5. Volunteer Vacation
Now it’s time for a vacation. How about a volunteer vacation? Build a school in Africa, restore coral reefs near Belize, preserve hiking trails in Colorado… The possibilities are endless! Cost and deductibility vary depending on the host organization so be sure to do your research and ask questions.
Some other considerations:
• Your own personal time/labor is not deductible. But keep track of any materials you may buy in the process.
• Mileage is deductible at 14 cents per mile. Track your miles to board meetings, special events, and fundraising.
• Most charitable contributions are limited to 50% of your adjusted gross income. Anything over this amount is carried forward to next year’s tax return.