When you give this holiday season, do right by you, too; done the right way, with charitable contributions, you can lower your tax bill. Of course, this only applies if you itemize your deductions -- if you take the standard deduction, you're not eligible to deduct charitable contributions from your tax bill.
What follows are some key pointers in giving to charity while also reducing your tax burden.
1. Audit the charity
This tip isn't even tax-smart -- it's just the first thing you should consider in giving and a way to ensure that your money is going to the right cause. Guidestar keeps records of a charity's actions so philanthropists can audit them for their legitimacy, impact and finances. Sign up for a free account and you can view a given organization's Form 990 before you donate -- excluding churches and state institutions. Resources like Philanthropedia also give experts a venue to sound off on which nonprofits are doing the best for their cause.
2. Keep the correct documentation
"The most common mistake I see with taxpayers attempting to claim a deduction for noncash contributions (such as clothing) is lack of documentation," says Diane Aksten, a certified public accountant in Farmington Hills, MI.
Make sure to keep records of all your donation receipts.
3. Know your donation's fair market value
To reduce your tax bill, you need some proof of your donations. If you gave something tangible like clothing, you'll also need the item's fair market value. Generally, this means what you deduct from your tax bill is less than what you paid for -- most clothing won't appreciate in value and sell for big bucks at the thrift store.
If you want to assess a donation's fair market value, use the Salvation Army's guide. It offers a range of values for an array of items, from air conditioners to slacks.
4. Give when you earn more
If you're able, plan your donations around your earnings, recommends Craig Allen, a certified financial planner in Santa Barbara, CA. The higher your income, the greater your tax liability. So, if you earn more in a given year, it may be time to make that hefty donation you've been waiting on.
"This is not always possible, but it should be considered whenever making any significant donation," Allen says.
5. Donate with distributions from your IRA
If you're over the age of 70 1/2 and you have an IRA, you can make your required minimum distribution (RMD) to a charity of your choosing. "This exempts the RMD from income tax," says Nick Phelps, a certified financial planner in State College, PA.
6. Give stock
If you sell stock and then give, you'll be taxed on the gains. If you "gift" the stock, however, you'll avoid taxes, says Helen Simon, a certified financial planner and realty management adviser in Oakland Park, FL.