The residents of Connecticut are known for their generosity. With so many worthy causes in the world, you may be considering how to donate while receiving the benefits of a tax deduction. You can reduce your tax burden while benefiting others by following charitable donation rules.
General donations to a cause
Most people handle charitable giving by donating cash directly to a non-profit organization. Whatever amount you give, this type of donation helps such service organizations thrive.
Fortunately, you can also claim this kind of direct giving as a tax deduction. Taxpayers can claim up to 60% of their adjusted gross income for cash donations. To receive this benefit, you typically must itemize your deductions on your tax forms. When you donate, you want to be sure to obtain a receipt from the organization. This document will serve as proof if there are questions about your taxes later.
Establishing a charitable trust
High-income individuals or people with large retirement accounts can pursue other avenues of charitable giving. Donations of stock and retirement funds can reduce an individual’s tax burden and help them avoid capital gain taxes. Charitable giving can also factor into estate planning, reducing taxes for family members.
Charitable trusts are another giving option with tax benefits. Most individuals choose either a remainder or lead trust to distribute their wealth. In a remainder trust, the fund benefits the donor or other designees for a set period. Then, the remainder benefits the charitable organization. A lead trust offers income to the charity first. After a set time, the fund returns to the donor or donor’s family.
Performing due diligence
No matter how you arrange your donations, you must verify the legitimacy of your chosen charity. You cannot get tax benefits for donations given to organizations that do not qualify as non-profits. Performing basic due diligence will prevent tax surprises and help your donation do the most good.