How to Use Charitable Donations to Lower Your Tax Bill

By Tom Nonmacher

Hello fellow savers! If you're like me, you're always on the lookout for ways to save money, maximize your budget, and make your hard-earned dollars work harder for you. Today, I'm excited to talk about a simple strategy that not only helps you save money, but also enables you to give back to your community: using charitable donations to lower your tax bill.

Yes, you heard it right! When you give money to IRS-approved charities, you're not just helping others, you're also reducing your taxable income, which could potentially lower your tax bracket. The more you give, the more you save! Now, that's what I call a win-win situation.

Here's how it works. Let's say you are in the 24% tax bracket and you decide to donate $1,000 to a qualifying charitable organization. You can then deduct that $1,000 from your taxable income. Essentially, this means you are saving $240 on your taxes ($1,000 x 24%). So, in reality, your $1,000 donation is only costing you $760. The higher your tax bracket, the more money you save!

Before we proceed, there's something important to note. To leverage this strategy, you need to itemize your deductions on your tax return. The standard deduction is quite high ($12,400 for single filers and $24,800 for married filers in 2020), so it only makes sense to itemize if your total deductions exceed these amounts. If you're close to the threshold, consider 'bunching' your donations. This means making multiple years' worth of donations in one year to push your deductions over the limit.

Now, let's talk about what counts as a 'qualifying charity'. The IRS has strict rules about this. Generally, the organization must be a religious, educational, scientific, or literary institution, or one that works to prevent cruelty to children or animals. You can check the IRS's online database to confirm if a charity is eligible. Also, remember to keep a record of all your donations. You'll need a bank record or a written acknowledgment from the charity to claim a deduction.

In conclusion, charitable giving is not only a great way to support causes you care about, but it can also be a smart financial move. It's a beautiful way to save money while making a positive impact in the world. So, why not consider including charitable donations in your budgeting and financial planning? It's a saving strategy that truly pays it forward!

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