When it comes to making charitable donations, it's important to avoid common tax mistakes that could potentially limit your deductions and overall tax savings. Here are four key mistakes to avoid, as outlined by the Daffy team:
1. Donating cash when you have stock or crypto with gains: When you donate appreciated assets, such as stock or crypto, you avoid paying capital gains taxes and can immediately claim the full fair market value as a charitable deduction.
2. Not understanding the tax benefits of charitable donations: Charitable tax deductions can help reduce your taxable income and save you money on your tax bill. However, tax laws surrounding charitable donations can be complex and ever-changing, so it's crucial to stay informed on the latest rules and regulations.
3. Not considering your personal values and beliefs when deciding how much to donate: The choice of how much to donate should be based on what feels meaningful and important to you.
4. Not maximizing your charitable tax deductions: Charitable deductions are one of the most generous income tax deduction strategies. You can deduct up to 30-60% of your Adjusted Gross Income (AGI) through charitable donations.
To maximize your tax benefits, consider using Daffy, a Donor-Advised Fund (DAF). Daffy allows you to donate appreciated assets, like stock, ETFs, and crypto instead of cash. This way, you avoid paying capital gains taxes on the asset and can immediately deduct the full fair-market value of the asset on your federal income tax returns for that year. Plus, the organization receiving the asset doesn't have to pay taxes on liquidating the asset, meaning the full amount goes to the organization you care about. It's a win-win situation for you and the charity.
Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.