Charity is the gift that keeps on giving, and not just for the recipients of the much-needed contributions. Charitable donations aren’t just a great way to give back to communities in need — they can also offer an appealing tax break incentive that many people don’t consider. We’ve compiled several tips to ensure your philanthropy goes far, in both good deeds and financial pragmatism.
Bundle them up
Bundle your donations. Bunching them can be an effective way to get one the high hurdle of the standard deduction, save your funds over time, and donate once every couple of years rather than every year. For example, $5,000 every two years versus $2,500 every year can help you get your itemized deductions past the limit one year, while also completing a standard deduction the year after. You can even choose to donate a significantly more substantial amount once every five years or so. With the passing of the Tax Cuts and Jobs Act back in 2017, many taxpayers experienced less of an incentive to itemize. A donor advised fund is a useful way to contribute while maintaining that immediate tax break.
Consider a donor-advised fund
A DAF (donor-advised fund) is also a wise decision if there are multiple causes that someone is passionate about. It essentially enables taxpayers to donate and claim deductions in a single year, while distributing the funds over time to different charities. Taxpayers can donate directly to an organization or an account with this tax advantage. It allows people to get an immediate deduction for anything gifted to this account, allowing individuals to invest the balance while growing tax-free. A DAF can also let you lay the foundation for a charitable legacy. This allows your children to know which charities to support as they grow older. Discuss with a financial adviser to see how your donations can impact your tax planning for the rest of the fiscal year.
Give when the need is high
Make your donation go farther by donating during the holidays. Thanksgiving and Christmas are both times of the year when giving back to those in need counts most. Doing this also allows you to take advantage of tax benefits before it’s time to file. To make your gift count during the tax year, they should be paid by December 31.
Do a background check
Screen the charity thoroughly before donating. Unfortunately, many organizations aren’t legitimate, and their funds don’t always end up where they promise. Even those of you with the best of intentions can be taken advantage of by scenarios like this, but it can be avoided by reviewing an organization’s online presence and their staffing. You can also search for proof of the charity’s results, or check to see if they have an active board of directors.
Always get a receipt
Get receipts for all donations, including cash donations. For cash donations, get a bank record (such as a voided check) that includes the amount, the date, and the organization. For contributions of $250 and over, you need an acknowledgment of the donation from the certified organization. Always ask for a receipt, which the majority of charitable organizations will be glad to provide. The documentation may not have to be submitted with your return, but it can help you be more prepared for an audit.
Find alternative donations
If you’re looking to dodge the capital gains tax on investments, you can choose between donating appreciated assets or stocks. Appreciated assets can be antique items or artwork that has increased in value over time. This method should be discussed with an advisor, as capital gains taxes can vary significantly based on earnings and what kind of asset they are. For example, if assets have diminished in value, selling them first may make more sense.
Remember why you give
While maximizing the investment aspect of donating is certainly a way to put some extra money in your pocket, we can’t forget that inspiring the spirit of generosity in others is equally important. When you contribute, let people know that you did with a charity challenge, asking followers to match your donation or surpass it. Post a direct link for donations on your organization’s site so that people can navigate it easily and swiftly. Not only can you do good, but you’ll also feel good doing so!