Tips for Charitable Giving this Holiday Season
Charitable giving is one of the most rewarding experiences, but it can be stressful and time consuming if you don’t know where to start. There are several steps we recommend taking now to save you time, stress and money, allowing you to give more to the people and causes that are most important to you.
Take Advantage of Tax Deductions & Consider Your Tax Rate
When you contribute money or goods to a tax-exempt organization (like a charity), you’re making a tax-deductible donation. This sort of donation can reduce your taxable income, so it’s a win-win for you and the recipient. It’s important to understand the process of claiming tax-deductible donations.
To claim a tax-deductible donation on that year’s taxes, you’ll need to itemize on your return. This is done by filing Schedule A of IRS Form 1040 (the standard federal income tax form people use to report income to the IRS, claim tax deductions and credits, as well as to calculate their tax refund or bill).
If standard deduction is more than the sum of your itemized deductions, it might be worth it to abandon itemizing and take the standard deduction instead. If you abandon itemizing, however, you abandon taking the deduction for what you donated.
Consider Gifting Stock or Appreciated Assets
Stock is a great option for charitable giving in the U.S. because neither the giver nor recipient is responsible for paying taxes on the capital gains, which is the tax that you would have to pay if you sold the stock. For example, if you purchased a stock years ago with a value of $1,000 and it is now worth $2,000, you would need to pay a capital gains tax on the $1,000 of appreciated value if you sold it. But if you offer it as a charitable contribution, you could take a deduction for the $2,000 donation without paying any of that tax.
Allow More Flexibility with Donor-Advised Funds
You may also consider a donor-advised fund, which is a dedicated account established at a public charity. When you make a charitable contribution to this sort of fund, you receive an immediate tax deduction and recommend grants from the fund over time. Donor-advised funds are popular especially due to their versatility, which gives donors the power to decide when, what, how and where to donate in a way that is most favorable to them. Just a few benefits of using a donor-advised fund include:
Maximizes tax benefits.
Allows you to immediately contribute and to grow your contributions over time, potentially generating increased funds to non-profits.
Helps you establish a charitable legacy on your terms.
Streamlines the administration and organization of your charitable giving.
Do Your Homework: Select Your Charity Wisely
It’s also important that if you plan to claim a deduction for the donation, you make sure that the organization is tax-exempt as defined by section 501(c)(3) of the Internal Revenue Code. Status quo qualified institutions include the Red Cross, museums, volunteer first responders and religious organizations. If you’re not sure of your organization’s status, you can check through this tool with the IRS. You can also find this information by calling the IRS toll-free at 1.877.829.5500.
On this same note, charitable gifts made to individuals are not considered tax-deductible, not that this should discourage you from giving to the homeless or GoFundMe accounts to help others with various expenses. But if you’re looking for tax-deductible options, the individuals on your list will not quality, no matter how deserving.
Consult Financial Experts
Unless you are an experienced CPA or have been involved in philanthropy for years, it’s best to consult with financial experts who understand the lay of the land before starting your journey into charitable giving this holiday season.
Our team is ready to answer all your questions and to help you along the way so your philanthropic activity can bring you as much joy to yourself as it does its recipients. Contact us today!