Tax Deferred Cash Gifts
- You have two kinds of gifts you may make. You can give money to a charity or to someone or some organization that is not a charity. A charitable contribution is the only contribution in which you're allowed to deduct the contribution from your taxable income. Otherwise, you may make a gift to anyone and exclude up to $13,000 per year from the special gift tax imposed on gifts to individuals and organizations.
- You must itemize charitable contributions on schedule A of your 1040 tax return when you want to deduct the charitable contribution from your taxable income. This exclusion does not apply to gifts made to non-charitable organizations and does not apply to gifts to individuals. Fortunately, the IRS has issued a change to how itemizing deductions work. As of 2011, you are no longer limited to deductions that exceed 2 percent of your adjusted gross income.
- The benefit of deducting charitable contributions from your taxes is twofold. First, you can give money to a cause you are passionate about. But you also receive the benefit of having more money than you otherwise would have, had you not made the deduction. It may be difficult for you to benefit financially from this kind of transaction since you would have to receive more back in income from your tax deduction than you gave to the charity.
- Charitable contributions may place you into a lower income tax bracket. If they do, your average tax rate, and thus your overall tax payments to the government, could be substantially less. You should be careful, however, to observe the tax-free limit of $13,000 annually. If you give more than this amount, you may save on taxes but make yourself subject to gift taxes, thus potentially negating the benefit of the tax deduction.