Contributing appreciated assets to charity can result in bigger tax savings than donating cash. With a donor advised fund, you can essentially optimize your income each year and put yourself in the tax bracket you want.
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A deduction is an amount you can subtract from your taxable income each year. Anyone who files a tax return gets a deduction and they can choose whether they want to take a standard deduction or itemized deduction. You can only take one or the other; you can’t take both.
A standard tax deduction is a flat amount of money that the government allows you to subtract from your taxable income to lower your tax liability. The amount is determined by the IRS every year, adjusted for inflation. The standard deduction is an alternative to itemizing your deductions, and you can claim it if you don’t have enough eligible expenses to itemize or if you choose not to itemize.
Standard deduction amounts for 2023 • For single taxpayers and married taxpayers filing separately, the standard deduction is $13,850. • For married taxpayers filing jointly, the standard deduction is $27,700. • For heads of household, the standard deduction is $20,800. • If you’re blind or over 65 years old, you can add an additional $1,500 on top of your standard deduction. If you’re also unmarried, you can add $1,850 instead of $1,500.
Rather than taking the standard deduction set by the IRS, some people may find that their deductions are higher when they claim individual itemized deductions for their eligible expenses incurred throughout the tax year. Unlike standard deductions, every individual will have a different deduction amounts.
If you choose to itemize your deductions, you’ll need to keep track of your eligible expenses and report them on your tax return. You’ll need to provide documentation, such as receipts and statements, to prove that you incurred the expense and that it was eligible.
Most people take the standard deduction because it’s easier, and it often leads to higher deductions than itemizing individual items.