Charitable contributions are a popular way to lower taxable income for many moms in addition to IRAs and HSAs. Being mindful of where you put your money to work can make sure you get the biggest tax break possible. Here are a few tips to help you make the most out of tax time.
Know What You Can Donate
Cleaning out your closet can be a great way to get a break on your taxes. Clothing, along with land and vehicles, are a non-cash deductible. You’ll need detailed records showing what you donated. The more details, the better. Include pictures, descriptions, and the fair market value for each item. There are several websites online that list hundreds of FMVs.
Know Your Tax Bracket
Donating to charities can do more than just make you feel good. Depending on your current income, it can actually lower your tax bracket. This is more helpful if you receive a raise and make enough money to raise you to the next tax bracket.
Here is a brief overview of the current tax brackets:
10% – $0 to $9,325
15% – $9,325 to $37,950
25% – $37,950 to $91,900
28% – $91,900 to $191,650
33% – $191,650 to $416,700
35% – $416,700 to $418,400
39.60% – $418,400+ $121,505.25
If you are close to being in a lower tax bracket, donating the amount you are over in a bracket can put you in a lower tax bracket. For instance, if you currently make $45,000 a year and donate $8,000 in clothing and cash, it’ll drop you from the 25% tax bracket to the 15% bracket.
These are just a few tips to get you started. Check out the infographic from Investment Zen for the more details on how to save on taxes and the legalities behind them.