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Take the Time to Be Thankful by Giving
As the holiday’s approach, many families will be gathering for Thanksgiving. One of the oldest Thanksgiving traditions is taking the time to share your blessings and giving thanks for the important things in our life, whether it’s our family, friends, co-workers, or health. Here are some tax tips to show thanks by giving with our finances:
Give thanks through a charitable donation
Thanksgiving is a great time to help others in need through charitable organizations, plus it can have some tax benefits. By this time of year, many of us have an idea on how much we will make in 2016. Charitable donations can be a way to help lower your taxable income by increasing itemized deductions. Individuals are allowed to deduct up to 50% of their adjusted gross income (AGI) for most charitable donations, including cash. There are other limitations subject to 30% and 20% of AGI depending on the type of property that is donated. Any amount in excess of this limitation is carried forward. Keep in mind, you cannot deduct donations to social clubs, political parties, foreign organizations, or individuals. Of course, everyone has a different tax situation so please consult your tax advisor if you intend to make any large gifts or to discuss how it will affect your tax situation.
Give thanks through retirement
Taxpayers the age 70 ½ and older can make tax-free charitable donations from their individual retirement accounts (IRA). The donation to a charity from a taxpayer’s IRA account will count towards the required minimum distribution for the year. Even better, by using your IRA distribution as a charitable donation, you could save more tax dollars than taking a normal charitable deduction. The use of your IRA distribution as a charitable donation will exclude the amount from income and therefore will lower your AGI. When your AGI is lower it’s typically beneficial, because AGI levels have various effects to other limitations and tax rates. Please keep in mind, your contribution must be made directly to the qualified public charity from your IRA trustee.
Give thanks through a gift
You can give up to $14,000 to as many individuals as you wish in 2016, and in most situations, wouldn’t be required to file a gift tax return. If married, you and your spouse can give up to $28,000 per individual. The gift would not be subject to gift or estate tax and the exclusion amount renews every year. There is only a little time left before the year is over, so don’t let your yearly gift exclusion go to waste.
As many of you know, Holiday gatherings can be very stressful. Take a deep breath and count your blessings, be thankful for what you have in life, and help others in need.
And if you have questions about how these rules apply to you, give us a call.
Happy Thanksgiving from your friends at Blue & Co.!