your contributions can be tax deductible under IRS Form 1040, Schedule A. and it adds up to a huge chunk.
But before you make the donations you must carry out a few checks. You must remember that only donations made to organizations that are recognized by tax agencies are eligible for tax deduction. Publication 78 gives a list of organizations that are allowed for these purposes and the same is available online and in public libraries too.
Donations to individuals, political organizations or political leaders cannot be claimed for tax-deductible purposes nor can you claim benefits for spending time raising money for organizations by holding raffles, bingo or any game of chance.
Contributions made in the form of merchandise, goods or services qualify for tax deductions. And it is on Fair Market Value only. For example, if you are gifting stocks, then the highest and the lowest traded prices are taken and the average is assumed as FMV for the purpose.
You can also donate your car, planes or boats. Resale value at the time of donation is calculated. If the claimed value exceeds $500, then only the gross profits can be claimed.
If you are donating a household or personal item then the deduction can be claimed on the amount that the item would have fetched in a garage sale or at a flea shop. All charitable contributions over $250 need a proper receipt to qualify for tax deduction.
Remember, the tax year is also a crucial factor; deductions are allowed on items only in that year and no carry forwards. So go on and keep a list of your generosity. The tax people would appreciate it. So would you.
And god is watching you from the sky up above and showering you with the choicest of blessings.
When I meet with new clients and discuss this deduction, I hear all sorts of reasons as to why they haven't taken this deduction:
They didn't know they could They don't use their vehicle that much for business They were told that since it was a personal vehicle, it couldn't be deducted They thought it was a red flag for an audit
The truth is, anytime your business uses your personal vehicle, there's a tax deduction, whether the business use is 1% or 100%!
Have Your Business Reimburse You for Its Use of Your Personal Vehicle. Your business can reimburse you for allowing it to use your car - even if you are the one using it in the business!
When your business reimburses you, your business claims the reimbursement as a deduction, reducing the amount of business income that is taxable, which in turn reduces your overall taxes.
The tax savings get even better! The reimbursement you receive from your business is not taxable to you - it is tax free income!
Don't Miss These Vehicle Expenses To make this tax reduction strategy work, you'll want to track how many business miles versus total miles you put on your car in a year. Your business miles divided by your total miles is your percentage of business use. This is a very important percentage because it is the percentage of your vehicle expenses for which you can be reimbursed by your business.
Vehicle expenses include:
Maintenance, Tune-ups, Replacement parts, New tires, Gas, Oil, Washes, Car loan interest, Depreciation, Lease payments
These deductions add up, which can mean big tax savings!
How Much Can You Save in Taxes? Here are 3 easy steps to estimate your tax savings from legally deducting your vehicle expenses for business.
Step #1: Determine your percentage business use of the vehicle by using the calculation in the above section.
Example:
Business miles = 6,000
Total miles (including business, personal and all other miles) = 10,000
Business percentage use = 6,000 ? 10,000 = 60%
Step #2: Calculate your total annual vehicle expenses, using the above list as a guide. Then, multiply the total by the percentage business use from Step #1. This is your deductible amount.
Example:
Total annual vehicle expenses = $15,000
Multiply total annual vehicle expenses of $15,000 by business percentage use of 60% to determine deductible amount.
Deductible amount = $15,000 x 60% = $9,000
Step #3: Multiply your deductible amount by your marginal tax rate. The result is your estimated tax savings from deducting your vehicle!
Example:
Deductible amount = $9,000
Marginal tax rate = 30%
Estimated tax savings = 30% x $9,000 = $2,700...every year!
You can usually find your marginal tax rate in a summary report provided with most tax returns prepared by a CPA or tax software.
STOP! Don't Drive By This Deduction. The vehicle deduction is one of my favorite tax deductions because it has the ability to turn expenses you already have into tax deductions. This creates a permanent tax deduction which eliminates tax!
Both Nicky Pilkington & Tom Wheelwright are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Tom Wheelwright has sinced written about articles on various topics from Legal Matters, Finances and Management. The truth is, anytime your business uses your personal vehicle, there's a tax deduction, whether the business use is 1% or 100%!