The main benefits of donating to charities and nonprofit organizations is allowing you to support important causes. However, giving back to your community may also give you several types of benefits including emotional and financial.
People who support established charities report feeling better about themselves after providing a donation. However, there are actually several benefits that may come from being generous with your money.
In this article, we will address how you can benefit from regularly donating to charities and non-profit organizations.
*Disclaimer: This article is only intended for educational and informational purposes and is not intended as a substitute for professional financial advice.
1. Charitable Donations May Qualify You for Tax Deductions
As a business owner and as an individual, one of the benefits of donating that you can claim is qualified tax deductions on charitable donations. Depending on your tax bracket and your taxable income, contributions to charitable organizations in Tennessee can help you get much more on your tax refund.
How Do I Get Tax Deductions From Charitable Donations?
Keep in mind that if you want to claim tax deductions for charitable contributions, there are requirements. Additionally, the IRS looks at donations and gifts differently when evaluating your tax return.
Gifts are when you freely give money to friends or family, usually with little to no documentation. Financial gifts may also include higher amounts, where there may be required documentation.
To receive a tax deduction, you must give to a qualified tax-exempt organization that meets 501(c)(3) of the Internal Revenue Code. Other qualified organizations include nonprofits with and some without 501(c)(3) status, which may make tracking your qualified deductions difficult. If you aren’t sure if the organization you would like to support qualifies for charitable contribution deductions, the IRS provides a tax-exempt status checker tool for organizations.
IRS | Tax Exempt Organization Search Tool
Also, depending on the number of donations you made during the year, you will either need to itemize your deductions or claim the standard deduction.
Can I Claim Deductions for Noncash Items?
To be eligible for noncash donations, the items in question must be in usable condition. In Tennessee, organizations such as Goodwill and The Salvation Army offer receipts and documentation for charitable contributions on qualifying items.
If I Donate My Time will I Qualify for Tax Deductions?
The time you spend volunteering for an organization is not tax-deductible. However, expenses such as travel are deductible.
Remember in order to qualify for and claim your yearly tax deductions, you will need to document each charitable contribution you make.
2. Donating Can Push You into a Lower Tax Bracket
If you’re making just enough money to be on the edge of a tax bracket, another benefit of donating could help you reduce your maximum taxable income. In fact, donating enough to charities or nonprofits during the year can push you into a lower tax bracket.
However, in order to do this, you will have to itemize your taxes. The IRS advises that you should only itemize your deductions if:
“Your allowable itemized deductions are greater than your standard deduction or if you must itemize deductions because you can’t use the standard deduction.” (Source: IRS.gov, November 2021)
If you’re not familiar with how tax deductions work, they reduce your amount of taxable income. As an example, if you’re single and filing your taxes and you’re just barely in the 2021 22 percent tax bracket, you may benefit from donating to a charity or non-profit. The maximum taxable income for the 12 percent tax bracket for 2021 is
$40,525.
Therefore, if you make around $40,600 per year, you would be in the 22 percent tax bracket. However, if you donate at least $75 in qualifying tax-deductible donations you may be able to file your taxes in the 12 percent tax bracket. As a result, you can save nearly ten percent of your yearly taxable income.
It should be noted that there are other potential tax deductions you may qualify for. But, donating to charitable organizations and nonprofits is one of the easiest ways for anyone to earn tax deductions.
3. Improved Money Management Skills
If making monthly charitable contributions is a priority to you, or if you make monthly religious contributions, you may have to budget your money more carefully. Once you begin managing one aspect of your finances, it tends to bleed into other areas.
For instance, by taking the time to give back first, it then gets easier to pay yourself and save your money before paying the bills.
These skills come with time, and without direct increases to your bank account. But giving to charity feels good and if you learn how to manage your money effectively, then you can feel more confident with your finances while you’re doing good.
4. Capital Gains Tax Exemptions
If you’re in the business of investing stocks, are a business owner, or invest in real estate in Middle Tennessee, you may run into, or are preparing for capital gains taxes.
This tax applies when assets are sold after accumulating value, and only if the asset was held for a year or more. Assets that are held for less than a year are taxed as regular income is.
5. An Improved Money Mindset
Going back to point three, if you are committed to making regular charitable contributions, you are certain to think about your money differently. One of the potential benefits of donating regularly is becoming more frugal with your money.
As an example amount, you may consider donating 10 percent of your income regularly for charitable contributions. Living at 90 percent of your income will force you to be more aware of your money, and more careful with how you spend it. This added awareness can also help you make better financial decisions, and also improve your mental health, your confidence, and your feelings of fulfillment.
FAQs About Donating to Charities and Nonprofits
How Do I Find a Good Charity to Donate to?
When you donate to charity, you want to make sure your money actually makes an impact on the cause you’re supporting. You also want to avoid donating to a fake charity scam.
One of the best ways to find a charity is to search online for accredited charities and for the best charities to donate to. Aggregate sites like Yelp will often compile lists of top charities in your area. You might also find a good charity in connection with a reputable Tennessee business.
When looking at charities to donate to, make sure you take a deep look at their website. Examine their tax-exempt status to make sure any charitable contributions you might make will qualify for a tax deduction. Also, carefully read their mission statement and find out what kind of programs they support.
Finally, you should also search Charity Navigator, CharityWatch, Charities.org, and the IRS website to confirm a charity’s tax status.
Is Giving to Charity a Waste of Money?
It depends on how you define a waste of your money. If you value getting help to people in need, you might not want to contribute to a charity with a lot of program costs.
Charities need to spend money for administrative and advertising purposes, otherwise, they stop getting donations. Typically, you’ll see organizations advertise that 100% of your donations go to program costs, and those costs include payroll, advertising, and overhead costs.
If you want to help people more directly, local charities can have a more direct impact on individuals in need. But, if you want to be a part of a big movement, a large international charity might be what you’re looking for. Just be aware that large organizations will have more internal costs to cover.
How Do Businesses Choose Who to Donate to?
It depends on your business. A large corporate retail business like Target uses their Target Circle customer rewards program to vote on which charities they select. If your business can’t support that type of customer interaction, that’s ok too. The leadership of your company may have a strong relationship with a local non-profit or charity.
Alternatively, if you aren’t sure what kind of charity or cause you want your business to support, try polling your employees for ideas. If your employees want to support several causes, you could turn it into an annual vote to determine which charities your company donates to.
Finally, you should also be aware of the connections and publicity associated with the organizations you support, to make sure you don’t lose out on your bottom line.
