Does Gifting Reduce Your Taxable Income?
If you are like other hard-working individuals who are disappointed to see the IRS take a sizable bite out of their checks, you could be wondering how you can reduce the amount of taxes you owe each year. You might even be wondering if you can list gifts to friends and family as tax deductions. Although everyone would love the chance to deduct personal gifts, the IRS does not count them when calculating your tax obligation. In fact, giving any one person more than $13,000 worth of gifts means you have to pay taxes on them.
Making Your Gifts Count
The good news is that you can still find ways to help people and reduce your income tax in the process. The key is to give your gifts to charitable organizations that help others. Churches, food drives and children’s hospitals are some examples of organizations to which you can donate in exchange for tax breaks.
You only need a receipt for your donation if you are deducting $250 or less. If you donate more than that to any charitable organization, you need a written statement to prove you donated. Make sure you keep your original receipt if you are going to donate canned food or presents so that you can track the value of each gift.
Sadly, you can’t count gifts to friends and family as deductions when it’s time for you to pay the IRS. Tracking the value of personal gifts can increase the amount you owe each year because the limit on annual tax-free gifts is $13,000. Instead of giving all your money to the IRS during tax season, find charitable organizations you support and donate to them.
You can pick the causes you wish to support instead of letting the government decide how to spend all of your taxable income. Your odds of facing an audit are small depending on the amount of money you bring in each year, but you still want to keep track of your donations in case the government takes a look at your records.