The Financial Advantages of Charitable Contributions
You don't have to wait for the holiday season to get into the giving spirit. Charitable contributions can be made during any season — but if you need some extra motivation to give back or support a cause you care about, consider various financial advantages that giving back can provide any time of year.
Plan Your Donations for the Biggest Tax Benefits
If you only give during the holidays, you might miss opportunities to plan out your charitable contributions to make the biggest impact on the causes you want to support — along with the biggest impact on reducing your tax bill.
Many donations to qualified charities give you an opportunity for a tax write-off. But to claim the deduction, you need to itemize all of your deductions when you file taxes.
With the Tax Cuts and Jobs Act this might be trickier to do. For many, itemized deductions are less than the $24,000 standard deduction. That means that it makes more sense to simply take the standard deduction, and therefore, your one-time holiday gift doesn't do anything to help your tax burden.
But if you plan ahead and batch donations together, you could get a tax break in the year you make the donation. For example, instead of planning to make many small holiday gifts to charities over multiple years, consider making one large donation that will allow you to itemize on your tax return and claim more than the standard deduction if you want to save on your tax bill.
Set up a Donor-Advised Fund
If charitable contributions are something you want to do over time, it might be to your financial benefit to set up a donor-advised fund. A donor-advised fund (DAF) is a savings vehicle that you set up with a public charity. You can then make contributions to the fund and get an immediate tax deduction based on your donation's value (up to the maximum of what the IRS allows).
Keep in mind that you can't take back cash, real estate, or securities you donate through a DAF. You can't change your mind and take money out of the fund for yourself. Once you make your charitable contributions, you can then direct what organizations get grants from the fund, as long as the recipients of the grants are qualified charities.
Don't Write a Check: Gift Appreciated Stock Instead
You might be used to sending in $50 or $100 to your favorite charities, especially when they start sending around mailers and requests for gifts around the holidays. But any time of year is a good time to donate appreciated assets, like stock shares, instead of simply sending money from your bank account to theirs.
If you have a position in your investment portfolio that appreciated in value, you normally need to pay capital gains taxes on that increase. But if you donate appreciated assets, you can not only deduct the value of the charitable contributions from that years' taxes but you also get to avoid getting taxed on the unrealized gain of the donated stock.
If you want to make an impact on a worthy cause, don't wait around until the holiday season. Plan your charitable contributions any time of year — and enjoy some of these added financial benefits for yourself.