- Bargaineering - http://www.bargaineering.com/articles -

Why You Should Put Off Year-End Charitable Contributions

We’re getting close to the end of the year and as everyone does their year end tax planning, it’s important to remember that not all “last minute tax tips” work for everyone. It’s important to analyze your particular tax situation before blindly following these ideas – RJ Weiss shares with us why you might want to wait until January 1st, 2011 to make those charitable donations [3].

Now that December is here, prepare yourself for Christmas music, crowded malls, and of course, the hundreds of personal finance articles about “Year-End Tax Planning.”

Many of these articles do serve a purpose. However, the majority, do more harm than good.

A common topic among articles about year-end tax planning is the deduction of charitable contributions. What many taxpayers don’t understand is that charitable contributions are only deductible if you itemize your deductions, which only makes sense for about 25% of taxpayers.

The purpose of this article is to discuss how you still might be able to benefit from charitable contributions, even if you don’t plan on itemizing this year. In order to do that, let’s review what deductions are.

Tax Deductions

A deduction reduces the amount of income you’re taxed on. The greater your deductions, the lower your taxable income.

There are two deduction categories, standard and itemized. With very few exceptions, you’re allowed to take one or the other when filing your taxes for the previous year.

The standard deduction [4] is a flat amount that you’re allowed to deduct based on your filing status. For 2010, the standard deduction for a single is $5,700 and $11,400 for a married couple filing jointly.

Itemized deductions are a variable amount that you’re allowed to deduct from your income. This amount is based off of your expenses during the year that qualify as itemized deductions.

Taxpayers that choose to itemize, due to the amount of their itemized deductions being greater than the standard deduction, include:

Click the following for more on itemizing. [5]

Thinking Ahead

Next time you come across an article about year-end tax planning moves, it’s important not only to think back about what deduction you plan to take this year, but think ahead as to what deduction you plan to take next year.

For example, in 2009 I became a homeowner. Up until that point, I had always taken the standard deduction. However, now as a homeowner paying mortgage interest and property taxes, my itemized deductions were greater than the standard deduction.

Looking back, I made a few charitable contributions in December 2008, even though I knew I wasn’t going to itemized deductions that year. If I delayed those gifts just a few more days until January 1, 2009, I could have deducted those gifts in 2009.

For those of you thinking about making a year-end donation, I applaud your generosity. However, before you blindly accept the advice that making charitable contributions is a good tax move, think ahead to what deduction you plan to take this year and next year.

If you’re more likely to use the standard deduction again on your 2010 taxes, wait until January 1, 2011 to make your charitable gifts. Doing this increases your chances of you being able to deduct your charitable gifts.

This is a guest post from RJ Weiss. RJ is an aspiring financial planner, who writes about financial planning for a small community of young adults, at Gen Y Wealth [6].