Year-End Planning – Charitable Contributions

Charitable contributions are one of the things that taxpayers can fully control when trying to get the best tax deduction.  The end of the year is often when people make charitable contributions.  People are making good on their charitable pledges for the year and the holiday season is a popular time to solicit donations and hold special events for charities.

Charitable contributions are allowed as an itemized deduction for taxpayers.  The deduction is limited to 50% of the taxpayer’s adjusted gross income for the year.  Sometimes for taxpayers with large contributions and a low income, planning the timing of contributions around that 50% limitation is critical.  Any excess charitable contributions can be carried forward, but that carry-forward only lasts five years.

Many of the itemized deductions are eliminated when it comes to calculating the AMT, but charitable contributions are fully allowed.  The other thing to keep in mind is the new phase-out of itemized deductions.  If your joint income is over $300k or $250k single, your itemized deductions begin to be phased out and that does include the charitable contributions.  Sometimes it can be difficult to really understand your marginal tax rate and the tax benefit of charitable contributions.

When you look at your tax rates for the current year and try to project your tax rates for next year, that can also play a role in the timing of your charitable contributions.  Maybe you already delayed last year’s contribution into this year because your tax rates are higher.  At this point it looks like the rates will stay the same for 2014 so it just depends if your income is going to change.

In accordance with Circular 230 Disclosure

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