The end of the year is a great time to consider charitable gifting. If you are feeling generous, want to make a difference in someone’s life, and want to reap potential tax benefits, this is the blog post for you!
Before we go any further, when we talk about gifting strategies, we’re not talking about buying your loved ones new socks for the holiday.
What is a gifting strategy?
When folks in the financial industry talk about gifting, it’s usually in reference to minimizing your estate, or improving your tax situation. It’s also of benefit to the beneficiary of your choosing. While everyone loves getting socks, they will probably love getting cash, stocks, or other appreciated assets even more!
Whatever your reason for giving this year, it’s important to know how your charitable donations can impact your financial plan. In fact, being strategic and intentional in your 2022 charitable gifting can create tax benefits for both you and your chosen charity.
Your Charitable Gifting Guide
Research Charitable Organizations
Maximize the impact your monetary donation can have by selecting reputable and transparent organizations. A qualified charity will have 501(c)(3) status, indicating it’s federally recognized as a non-profit organization.
Third-party websites like Charity Navigator, Charity Watch and Give Well offer unbiased, independent ratings and evaluations of charitable organizations. These sites can offer important insights into how money donated is distributed. If you’re considering making a sizeable donation, it may be helpful to speak directly with the chosen charity to discuss how the gift will be utilized.
If you haven’t already, check with your employer about what opportunities they provide in regards to charitable gifting. For example, some employers will match employee donations to certain organizations.
Consider Itemizing Your Deductions
Check out this video to learn about the important tax thresholds for gift giving.
To deduct charitable donations, you must itemize them on an IRS Schedule A form. To do this, you’ll need to keep track throughout the year of each donation made to a charitable organization. In most cases, the charity can provide you with a form to document your contribution. If the charity does not have such a form handy (and some do not), you may be able to use other forms of proof including:
- Receipts
- Credit or debit card statements
- Bank statements
- Canceled checks
When reporting deductions, the IRS may want to know a few important details such as the name of the charity, the gifted amount and the date of your gift.
Remember, itemized deductions may only have tax benefits when they exceed the standard income tax deduction, so be sure to check on the standard deduction amount for your tax filing status.
Make Non-Cash Donations
Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move.
For example, you may wish to explore a gift of highly appreciated securities. Selling securities can lead to a taxable event.
This transfer can accomplish three things:
- You can manage paying the tax you would normally pay upon selling the shares.
- You may be able to take a current-year tax deduction for the full fair market value of the shares.
- The charity gets the full value of the shares, not their after-tax net value.
Charitable gifting is a complex topic and we are barley scratching the surface here in this blog post.
We see situations all the time where folks accumulate assets and then want to shed these assets later in life. But you can, and should, think about gifting as part of your overall financial plan at all points throughout your life.
If charitable gifting is an important part of your financial plan, it’s important to make sure you’re getting the most out of each donation.
As always we want to recommend that you please speak with your tax preparer before making any final decisions on gifting. While we are well-versed in this area, we are not tax experts.