Donate. It Reduces Your Tax Liability.
With year-end quickly approaching there are still several tax savings opportunities available, one of these is contributing to charities. There are several items to consider before making year end donations to charity.
Are tax rates going up? This is the million dollar question as of now it is not clear how Congress will act. If you believe you will be in a higher tax bracket, it might make sense to wait until 2011 to make the donation to your favorite charity. This will help reduce your tax liability for 2011.
Another item to consider is the itemized deduction phase-out. The 3% phase-out is irrelevant for 2010 thus ensuring that you will receive maximum benefit from your donation. If you wait until 2011 there is chance that a part of your donation could be lost because of the reinstatement of the 3% phase-out.
Charitable contributions are also limited by your adjusted gross income (AGI). Charitable contributions are limited to 50% of AGI. If AGI is $50,000 you are not allowed a deduction greater than $25,000. Anything over that will be carried forward to future years.
Finally, if your income is lower than normal and you are planning on converting your traditional IRA to a Roth IRA then it might make sense to make additional charitable contributions in 2010. This will be especially beneficial if you are planning on electing to pay the tax on the conversion in 2010.