Yahoo Finance Charitable Giving: 5 Strategies To Consider That Do Good and Make the Most Financial Sense
December is a big month for charitable giving, with roughly one-quarter of annual nonprofit revenue coming through donations in the final month of the year. The spirit of the holidays has a lot to do with that, but so does the fact that it’s your last chance to make charitable gifts that can be turned into tax deductions next tax season.
See: IRS Increases Gift and Estate Tax Exempt Limits — How Much You Can Give Without Paying
Explore: What To Do If You Owe Back Taxes to the IRS
Financial donations must be made by Dec. 31, 2023 to be eligible for a 2024 income tax deduction, but that’s not the only way to give. You can donate time, goods, food and other items, or rally others to help support your causes. Taking a big-picture strategy to year-end giving can often do good while also making financial sense, according to Zachary Gildehaus, a CFA, CFP and Senior Analyst at Edward Jones.
“A lot of people tend to do what’s commonly referred to as checkbook giving,” Gildehaus said in email commentary shared with GOBankingRates. “This consists of giving cash when a cause speaks to them, but there are opportunities to be more thoughtful with your giving by integrating it into your overall financial strategy. An individual can start by considering what, when, and how you want to give. This may allow you to give more and recognize tax or other benefits.”
When considering what to give, Gildehaus recommended taking stock of all your assets, including non-cash assets. Certain assets, such as appreciated securities, can offer “ancillary benefits” like eliminating capital gains taxes, which allows you to give more to charity and claim a larger income tax deduction if you itemize your deductions.
“This strategy can be particularly beneficial when rebalancing a taxable portfolio,” Gildehaus said. “By donating appreciated, overweight securities and investing cash in underweight portions of the portfolio, you may be able to rebalance while realizing little to no capital gains tax. Conversely other assets, like securities you’ve held for a year or less or securities that have gone down in value, may prove less beneficial to give to charity due to their tax treatment.”
A blog from Fidelity Charitable offered similar advice, noting that by donating an asset such as a long-term appreciated stock, you can “improve your charitable tax deduction and end up with a larger gift than if you sold the securities and contributed the after-tax proceeds.” In addition, you’ll typically be eligible to take a tax deduction for the fair market value of the investment contribution.
Here are five other giving strategies that can make a big charitable impact and also benefit you financially:
Bunch multiple years’ worth of planned donations into a single tax year. “If you have money set aside for making annual donations, giving a larger sum in a single year may allow you to itemize your deductions and pay lower income taxes in that year,” Gildehaus said.
Make sure you are giving to a reputable charity. A blog from Merit Financial Advisors recommended visiting the Better Business Bureau’s Give.org site, which lets individuals independently research 501(c)(3)s to determine their operating status and more. Charity Navigator and GuideStar are also helpful resources to learn more about charities and nonprofits.
Search for a company match. A good place to start is by checking your employer’s worker engagement calendar to see if any giving drives or volunteer days are scheduled. Many employers and charities also sponsor charitable gift matching programs or campaigns, which can increase your impact with no additional out-of-pocket costs, according to Fidelity Charitable.
Use qualified charitable distributions (QCDs) to realize tax benefits (if you are at least 70 ½ years old). QCDs are distributions given directly from an IRA to a qualified charitable organization. “Typically, a distribution from an IRA is recognized as taxable income, but a QCD is not,” Gildehaus said. “This becomes particularly important when you turn 73 and begin taking required minimum distributions (RMDs) from an IRA.” Not only are RMDs subject to income tax – but the additional income could push you into a higher tax bracket with potentially adverse consequences for Social Security payments and Medicare benefits.
Open a donor-advised fund that lets you make a single donation of cash, stock, or other assets to be eligible for an immediate tax deduction.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Charitable Giving: 5 Strategies To Consider That Do Good and Make the Most Financial Sense
