Some tax deductions offered by the IRS encourage taxpayers to help society. Whether it’s encouraging donations to charity or caring for elderly relatives, there are several ways to reduce your own tax burden and feel good about how you did it. Here are seven tax breaks that might bring a smile to your face.
1. Donate to Charity
The IRS encourages you to give money to charity – if you itemize, you can take that amount off your gross income when you’re figuring out your taxes. If you’re supporting a cause, you can do so feeling good about your contribution – and reduce your taxable income at the same time. The IRS has strengthened its documentation requirements, however, so get a receipt for any donations to avoid the danger of having them disallowed in case of an audit. Be sure to read about Charitable Contributions You Think You Can Claim But Can’t to avoid any surprises.
2. Give Locally
When you fund local charities and nonprofits, you not only get a tax break, you also improve your community. Research what your local needs are and contribute toward recognized charities that meet those needs. It’s a good feeling to know that your donations are making sure your fellow residents are able to get a hot meal at a soup kitchen or that students with financial need will still be able to attend your local community college.
3. Fund Individuals
Giving to individuals raising funds for a charitable cause can be particularly rewarding, because you have direct knowledge of what the funds are designated for. For example, if a friend is going on a three-day bike ride to raise money for a cause and has a fund-raising goal of $3,000, giving her a big boost toward that number can allow her to concentrate on her training instead of fundraising– while you get to take that cash as a tax deduction.
4. Environmental Causes
When the planet is healthier, everyone benefits. The IRS offers a number of incentives to be environmentally friendly, with tax breaks for donations to environmental causes or for increasing the energy efficiency of your home. Laws on the latter change frequently, so consult the current year’s guidelines before claiming the deductions on your return.
5. Sports & Entertainment
Not every charitable donation has to go for a weighty cause like saving the planet. Local sports teams, art centers or community theaters may be registered non-profits with the IRS, meaning your donations there are tax-deductible as well. They help keep the arts alive in your community and allow residents opportunities to participate in these activities. Note that if you get any benefits from the donations – such as free tickets– that value should be subtracted from the write-off.
6. Volunteer Work
You can’t deduct the time you spend performing volunteer work from your taxes. A seamstress who spends 10 hours making costumes for the local nonprofit’s theater production, for example, can’t subtract that hourly rate from her income. However, if she hires a babysitter so she can volunteer, that payment is considered a charitable donation by the IRS. She also can deduct miles driven for charitable purposes, although the deduction is much lower than the standard mileage rate for business purposes.
7. Caring for Elderly Parents
If you’re caring for an elderly parent, you may be able to declare him as a dependent and deduct expenses relating to his care. The sticking point is the income level of the parent. He can’t earn more than the exemption amount and must get at least half of his support from you. However, he doesn’t have to live with you — money given to help fund a stay in an assisting living facility or for a caretaker also qualifies.