Tax-Deductible Donations To Your Favorite Charity With Pre-Tax Dollars

Did you know the amount of charitable donations you can deduct may range from 20% to 60% of your Adjusted Gross Income (AGI)?  Taxpayers can make charitable contributions or donations to help lower their taxable income via a tax deduction. Your tax professional can help you itemize, to claim a tax-deductible donation.

In California, you can donate to a charity with pre-tax dollars from your paycheck through programs like Payroll Deduction Contributions and Donor-Advised Funds (DAFs), but there are specific conditions and limitations so you will want to consult with a tax professional. Here's an overview of how it typically works:

Payroll Deduction Contributions:

Many employers offer Payroll Deduction Contribution programs, allowing employees to donate to eligible charities directly from their paycheck before taxes are calculated. These programs are often set up through a third-party organization, such as:

1. Brenda’s Smart Start:  A Los Angeles, CA based nonprofit that teaches financial education & economic development at no cost, in exchange for charitable donations.(click here to donate)

2. Employer-Sponsored Giving Programs:  Some companies have their own programs, enabling employees to choose from a list of eligible charities.

Note: While donations are taken from your paycheck before taxes, this does not necessarily mean they are exempt from all taxes. The contributions are made with post-tax dollars, but you may still be eligible for a tax deduction when filing your tax return.

Donor-Advised Funds (DAFs):

Donor-Advised Funds allow you to donate to a fund where the money is distributed to charities. Contributions to a DAF are typically tax-deductible in the year they are made. This option is ideal if you want to make a large donation and distribute it over time.

Section 125 Plans:

If your employer offers a Section 125 Plan (also known as a Cafeteria Plan), you might be able to allocate funds for charitable contributions pre-tax. However, this is less common for charitable donations, as Section 125 plans primarily cover health and welfare benefits.

Federal and State Tax Deductions

Even if donations are made with post-tax dollars, you can still claim them as itemized deductions on your federal and state tax returns. Keep these points in mind:

• Federal Tax Deduction: You must itemize your deductions on Schedule A to claim charitable contributions.

• State Tax Deduction: California follows federal guidelines for charitable contributions, allowing itemized deductions on your state tax return.

Considerations:

• Eligibility: Ensure the charity is a qualified 501(c)(3) organization to claim tax deductions.

• Documentation: Keep records of all donations, including receipts or confirmations, especially for donations over $250.

• Employer Matching: Check if your employer offers a matching gift program, which can double the impact of your donation.

Conclusion:

Donating to charities through payroll deductions or other pre-tax methods can provide tax advantages, but it's essential to understand the specifics of each program and maintain proper documentation. For personalized advice, consider consulting with a tax professional or financial advisor.

Edited by: Cliff Delfosse, a financial journalist with a focus on personal finance and wealth management strategies.

For more money tips and articles on personal finance, visit us online and click “Financial Education” on our website: www.brendassmartstartinc.org

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BRENDA’S SMART START INC., a registered 501(c)3 organization, is a firm believer in corporate responsibility and community engagement.  We are proud fiscal sponsors of the communities we serve globally, through our partnership with The Blueprint Empowerment Academy, LLC.