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5 charitable donations that qualify for tax deductions

5 charitable donations that qualify for tax deductions

The holiday season is right here, and it’s a great time for giving. Giving doesn’t just have to be limited to gift exchanges; it can also include donations to those who are less fortunate. Not only do these donations make a positive impact on the lives of others, but many of them are also eligible for tax deductions. To help people maximize their donations and receive the full tax benefits, this article lists five tax-deductible charity gifts to consider.

Cash
Cash donations are the most popular types of tax-deductible charitable donations. Donors can make these payments through cash, credit, or debit cards. If the donations are made to a qualifying organization, they can deduct them on Schedule A. However, one needs to file them as itemized deductions, and they are typically limited to a percentage of the annual gross income.

Stocks and bonds
Several non-profit organizations accept stocks and bonds as donations. Since these are tax-deductible and do not tack on capital gains taxes, they tend to result in higher donations. In most cases, they are immediately liquidated to improve cash flow within the charitable organization. However, it is important to note that these tax deductions may look different for everyone based on the organization donated to and one’s adjusted gross income.

Clothing, appliances, and other household items
Clothing, used furniture, books, shoes, and other household items that are in “good” condition may also be considered for tax deductions when donating to non-profit organizations such as Goodwill. According to federal guidelines, these deductions must be itemized and valued. Details regarding the same can be found on the IRS website.
Donors deducting $500 or more from their tax claims must also fill out Form 8283. For donations exceeding $5000, donors are required to attach an appraisal of their items.

Patents, copyrights, and other intellectual property
Intellectual property (IP) refers to the creations of the mind that grant users exclusive rights over their creations or inventions. IP can be donated to charitable organizations, which are eligible for tax deductions. Common forms of donated IP include copyrights, domain names, patents, and trademarks. There are two distinct ways in which such donations can be claimed:

  • The donor receives the full face value of the intellectual property as a tax deduction or
  • The donor continues to receive tax benefits based on royalties and other monetary gains received by the intellectual property.

Real estate and land
Real estate donations made to charitable organizations also qualify for tax deductions. These could include vacant land, industrial or residential complexes, land contracts, commercial property, or timeshares. For individual real estate donors, property that has been held for over one year (long-term capital gain property) qualifies for a deduction of the full fair market value of the property. Different rules may apply for corporate, partnership, and LLC donors. It is advisable to speak to a qualified tax professional to gain insights.

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Pros and cons of automated investing

Automated investing services, or Robo advisors, have become ubiquitous in the present times. Many financial service companies now have their own automated investing services. There’s no doubt that the introduction of Robo advisors has made investing an accessible financial option to many. However, automated investing has some disadvantages as well. So, before you decide to opt for the best automated investing service, have a look at its pros and cons.Pros of using Robo advisorsLow feeLow management fees are one of the biggest advantages of opting for a Robo advisor. Big names in the finance industry such as Charles Schwab Corp.'s Intelligent Portfolios offer Robo advisors for free, while some financial institutes such as Betterment and Wealthfront charge a low 0.25% as a management fee. High-quality investment portfoliosAlgorithms used in some of the best automated investing services such as the ones provided by Betterment are backed by Nobel prize-winning investment models. These models are created to offer the greatest return on investment for the smallest risks. Access to a financial advisorMany traditional financial services companies now use Robo advisors to select assets for their client’s investment portfolios. This allows them to offer their clients financial advisers that can help them with taxes, loans, and any kind of financing or investment.Easy to useRobo advisors make the entire investing process extremely quick and easy. With Robo advisors, all you need to do is answer some questions about your financial goal, risk tolerance, and capital, and the algorithm will come up with an investment portfolio that is suitable for your needs. Low minimum balanceEven individuals with low net worth can enjoy the services of professional advisory via Robo advisors. Several investment companies such as Betterment and Ellevest offer access to the best automated investing services even with zero balance. Cons of using Robo advisorsThey're not financial plannersIndeed, in terms of purely creating profit-racking portfolios, the best automated investing systems can be better than human financial planners. However, a Robo advisor cannot understand your short- and long-term goals and financial concerns as a human financial advisor. A good financial planner understands your financial aims and helps you create a portfolio that helps you meet your future retirement goals. Financial planners are especially helpful at times when the market is not performing well. They can be limitingRobo advisors can’t go beyond their pre-programmed questions when creating an investment portfolio. They can also be limiting if you’re looking for more complex investment strategies, and can’t engage in trading on your terms. Many sophisticated investors demand a larger investment portfolio with different asset classes, which may not be possible even with the best automated investing systems.

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5 mistakes to avoid to become debt-free quickly

While debts are often inevitable to fulfill certain essential requirements, being in debt can be rather harrowing, especially when there are multiple debts to repay. Recent statistical data suggests that 77% of households nationwide are in some form of debt. On the bright side, systematically approaching the debt repayment process can help one become debt-free. So, here are some common mistakes to avoid while trying to get out of debt quickly: Repaying only the minimum amount one owes While repaying the minimum amount one owes makes sense when one cannot afford to repay more, it is important to start paying out more than this minimum sum eventually to become debt-free. An effective strategy to increase the debt repayment amount is to list all of one’s expenses and cut down on the unnecessary ones. One may then prepare a plan on the amount one can easily afford to repay for every installment. Not strategizing what debts to pay off first Having a definite plan on which debts to prioritize can help in gaining more clarity and avoid last-minute hassles before the final repayment date. One effective way to repay debts quickly is the snowball method. It involves paying off the smallest debt first and then moving to the larger ones in a sequential manner. On the other hand, the avalanche method begins with paying off the largest debt and then gradually moving towards the smallest one. It is important to estimate the approximate time required to repay the loans using each method, along with considering the amount of interest that can be saved. Paying off too many debts simultaneously every month Auto loans, home loans, credit card debts, and personal loans are some of the multiple debts one may have. However, trying to pay off all of them every month can prove a wrong move, as it can be overwhelming and leave one with less money left for current expenses. Among these debts, some debts require monthly installments, while others can be paid in larger denominations. Hence, monthly payments should be restricted to the ones that need to be paid off each month, while others should be paid off in larger installments based on one’s repayment capacity. Not setting up emergency funding Emergency funds typically prove the most useful on a rainy day. This rule applies even when one has to repay debts, as using the money in one’s current account during emergencies can deplete the amount one has in hand to repay existing debts. Thus, it is advisable to devote 5% of one’s monthly income to emergency funds even while trying to repay debts. Spending too much or not organizing expenditures Having a set budget for one’s expenditures and shopping with a list are essential practices one should follow, especially while trying to repay debts quickly. It also helps to understand current market rates to instantly gauge what products strike the right balance between quality and price.

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