‘Tis the season of giving! December is the most popular month to give to charity. More than 30% of charitable giving happens this month. It’s a month of great need, as children need gifts and homeless people need coats. It’s also a time of goodwill, when you may feel like giving the most. And, of course, it’s your last chance to have charitable contributions recognized in your taxes for the year.
When you’re just giving $20 to a friend’s fundraiser, you don’t need to think very hard about it. But if you’re interested in making more of a difference this year and managing those donations for maximum tax benefit, it may be time to talk to a financial advisor about how you’re donating.
Budgeting for Charitable Donations
Are you disappointed with your charitable giving at the end of the year, realizing that you didn’t give as much as you hoped? Too often, we donate out of the leftovers in our budget–whatever we didn’t happen to spend. If you want to donate more in the coming year, consider adding charitable giving as a regular item in your budget.
Some people like to give 10%. Others, especially living on a tight budget, are happy with 1%. Decide on an amount you think you can afford. If you don’t know what you can afford, creating a budget with your financial advisor is a good first step.
Which charities could you donate to? Consider splitting your donations between causes you believe in and organizations you are involved with, leaving a little room for unexpected requests. If you have money in your charitable giving budget when a friend or family member shares a fundraiser, you’ll be able to donate right away.
Tax Strategies for Donations
Of course, the real reason you donate money is to do good for others. But there’s no reason your giving can’t also be reflected in your taxes. Like tax money, your donations give back to the community. But this way, you control where your contribution goes.
If you want a deduction for donations when you’re filing your taxes, you will have to itemize your donations. That means you can’t take the standard deduction. So it’s important to know whether your donations are more or less than the standard deduction. There are limits of how much you can deduct—usually about 60% of your adjusted gross income—but this varies by year and where you donated.
In order for your donations to qualify for a write-off, they have to meet certain qualifications, such as:
- The money was donated to a qualifying tax-exempt organization. You can check if one qualifies here.
- The donation was documented with a receipt or acknowledgement letter from the nonprofit.
- Your donation is measured in cash, property, or expenses connected to volunteering. The value of your volunteer labor itself can’t be written off.
Think Beyond Cash Donations
Can you donate to a charity you like with a simple check? Of course. But consider donations that go beyond money, like stocks, real estate, or business assets. Why? Because the charity now gets the whole value of the asset tax-free. If you sold it, you would have to pay taxes on the proceeds and then donate the cash that was left. By donating the asset itself, your donation is worth up to 20% more to your chosen cause! That also means you can write off the whole fair market value of the donation on your taxes.
You can donate these assets directly to a donor-advised fund. These funds allow you to donate now and assign the assets to different charities later. You can also invest the funds so they appreciate for even greater benefits to the charities you choose.
Start Planning Your Giving
This year, don’t let goodwill remain a feeling in your heart. Put it into action with donations to the charities you believe in. To make sure your donations are financially sound and tax deductible, speak to your financial advisor today!