Tax season is upon us again, and I'm sure you're as excited about it as I am.
It's not all grim, though. While Uncle Sam taketh, he also giveth away -- at least a little. If you were generous with cash or goods in 2005, you may be able to eke out a little bit of tax advantage from your good deeds by deducting donations made to qualifying charitable organizations.
If you donated $250 or more to any charity, you'll need to get and keep a receipt for tax purposes. Also realize that "tax-exempt" is not the same as "tax-deductible." A tax-exempt organization doesn't have to pay taxes, but donations to it may still not be tax-deductible. You can ask to see a copy of a charity's tax-exemption paperwork, as well as some proof that deductions are tax-deductible.
Donating stuff (even cars) can also be a good move -- especially since it de-clutters your home and life. To do this right, clear out your basement, garage, or closet, and make a list of everything you're donating -- perhaps to the Salvation Army, Goodwill, or some similar outfit. Describe each item by type, condition, and quantity. Get a fair estimate of their values (and accept that it may not be close to what you paid for them) and sum it all up. Let's say the total is $800. If you're in the 25% tax bracket and can deduct this amount, you'll save $200 -- not bad, eh? Don't simply guess their fair value, though. Guess too high, and you run the risk of ticking off Uncle Sam, should he come snooping. Guess too low, and you're leaving money on the table. The folks at Intuit (Nasdaq: INTU ) now offer an "It's Deductible" service, for a modest price, to help you determine values. Learn more in IRS Publications 561 and 526.
If you've donated stock, learn how to treat that by checking out this TMF Taxes article. (Note that the 20% tax rate for long-term capital gains has been lowered to 15% for many folks since the article was published.) With all things tax-ish, there are rules and limitations. Make sure that you and your recipients meet Uncle Sam's requirements. To learn more, pop over to our Tax Strategies Center.
And finally, if you're thinking of investing in a tax-related company, read this Jim Mueller article on Intuit, and also his article on H&R Block (NYSE: HRB ) . Another firm you might investigate is Jackson Hewitt Tax Service (NYSE: JTX ) -- see what Rick Munarriz had to say about it.
LongtimeFoolcontributorSelena Maranjiandoes not own shares of any companies mentioned in this article.