For many people, the cost of holiday gift giving adds up fast. Whether you give generously or simply feel compelled to reciprocate, many wonder if there is a way to save on taxes as a result of all of this spending. Unfortunately, when it comes to the new video game you buy for your child or the gift card you purchase for your parents, no tax deduction is available.
Charitable Donations Can Be Tax Deductible
On the other hand, when you give to charitable organizations, a tax deduction might be available. As long as your gifts are given to 501(c)(3) organizations, charitable donations to them are deductible to the extent the value you give exceeds the value you receive.
A couple of examples will help explain.
Example 1: If you donate a check for $100 to your church as part of a fundraiser and, in exchange, receive a ticket to a dinner with a value of $30, your charitable donation is $70. ($100 value donated less $30 value received).
Example 2: If you give clothes that cost you $500 to an organization, such as Goodwill Industries, that are worth $100 at the time of the donation, your potential tax deduction is $100.
Don’t worry about trying to figure this out. TurboTax ask you simple questions about your donations and helps you figure out your tax deductions. In addition, you can use ItsDeductible to value and track your donations.
Business Gifts and Tax Deductions
Run a small business? If you give gifts to business associates, you can deduct part of the cost of that gift. That’s true even though the associate is likely another person or company – not a 501(c)3 organization. Furthermore, you can give and deduct as many business gifts as you like. However, the amount of the tax deduction is limited to only $25 per gift recipient per year. So, if you give five $50 gifts to five different people, your total tax deduction is $125 (5 different individuals multiplied by the $25 maximum per recipient.)
Are Gifts You Receive Taxable?
While it may seem like the government taxes everything, gifts you receive are not taxable. So enjoy the rare tax-free income.