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As the holiday season brings a surge in generosity, it’s the perfect time to explore ways to make charitable giving work in your favor financially. With a bit of tax-smart planning, you may be able to increase the effect of your contributions on the causes you care about while also reaping valuable tax benefits. This guide breaks down strategies for tax-efficient holiday giving that may help boost both the charitable impact of your donations and the personal financial rewards you gain.
During the holiday season, aligning your charitable contributions with tax benefits may help your giving go even further. Tax-efficient giving isn’t just about donating; it’s about understanding how to possibly reduce your tax burden while supporting causes you value. When structured thoughtfully, holiday contributions may assist in bringing the dual benefit of meaningful support for charities and financial savings for you.
Why tax-efficient giving matters: Structuring your contributions with tax efficiency in mind may help more of your donation go where it’s intended and reduce your overall tax burden.
Deductions for itemizers vs. standard deduction takers: Taxpayers who itemize have the possibility of reducing taxable income with qualified charitable
contributions. This step may provide a considerable tax advantage in high-income years. Even those who typically take the standard deduction have an opportunity to benefit from itemizing if they employ bundling strategies (see section 5).
Verify Charities Using the IRS Tax Exempt Organization Search Tool.
Donor-Advised Funds (DAFs) allow donors to contribute cash, stocks, or other assets for an immediate tax deduction while distributing funds to charities over time. This lets you decide when and where to direct donations, offering flexibility and control.
How DAFs benefit taxpayers: DAFs can provide immediate tax benefits, including a deduction for contributions in the year they’re made. Funds grow tax-free, maximizing the impact of future donations. DAFs are ideal for long-term charitable plans as they provide a single, impactful way to support multiple causes over time while making space to maximize tax benefits.
What are appreciated assets? Appreciated assets such as stocks, bonds, or real estate are investments that have gained value over time. Donating these assets directly to a charity can provide a tax advantage. One potential advantage is avoiding capital gains taxes while allowing a charitable deduction for the asset’s fair market value.
Tax advantages of donating appreciated assets: This strategy offers a “double benefit”: no capital gains taxes and claiming a deduction based on the current market value of the asset. This action may maximize both the size of your donation and your tax savings. It’s particularly valuable for high-net-worth individuals or those with highly appreciated investments.
What is a QCD? For individuals aged 70½ and older, a qualified charitable distribution (QCD) is a tax-free donation directly from an IRA to a qualified charity. QCDs are also a great way to meet required minimum distributions (RMDs) without adding to your taxable income.
Benefits of QCDs:
What is bundling? Bundling, or bunching, involves combining several years’ worth of charitable donations into a single year with the intent of exceeding the standard deduction threshold. Bundling can support your ability to itemize deductions and gain a tax benefit.
How bundling works: By itemizing in years when you make larger donations and taking the standard deduction in other years, you may be able to maximize tax savings.
Tax benefits of bundling: If you concentrate donations in one tax year, you may surpass the standard deduction limit. The result is that it could be possible to itemize in that year for a larger tax deduction. Bundling is especially useful for those with fluctuating incomes or those seeking a strategy to maximize deductions across multiple years.
Stocks, real estate, and other non-cash donations: Donating non-cash assets such as stocks or real estate presents a possibility to maximize the value of contributions and minimize tax obligations.
Valuing non-cash assets: Proper valuation of non-cash assets is critical to ensure you receive the correct tax deduction. Depending on the asset type and donation size, a qualified appraisal may be required, especially for contributions over $5,000.
Documentation requirements for non-cash contributions: The IRS requires thorough documentation and appraisal for non-cash donations. Proper paperwork, including IRS Form 8283, helps you avoid potential issues and increases the likelihood that your contributions maximize both tax benefits and charitable impact. For details, refer to the IRS guidance on non-cash contributions.
Create a charitable giving strategy: A thoughtful, long-term giving plan aligned with both personal and financial goals helps make a sustained impact, with tax-efficient giving as a key component.
Work with a financial advisor: Financial advisors offer the expertise to craft a giving strategy that aligns with your broader financial goals. They can also work with you to create a giving approach that is as smart and effective as possible.
Integrate charitable giving into your estate plan: Incorporating charitable gifts into your estate plan allows you to leave a legacy while benefiting from potential estate tax reductions. Including charities in your will or trusts extends your impact for generations.
The holiday season is a time for giving. With a thoughtful approach, make your generosity both impactful and financially rewarding. Strategies like DAFs, appreciated assets, QCDs, bundling, and non-cash donations allow you to potentially maximize both tax savings and support for the
causes close to your heart. The experienced financial advisors at Investor’s Resource can help you develop a giving plan that aligns with your overall financial goals, now and in the future. Have questions or want more information? Contact Shari Moxley with Investor’s Resource today.
Investor’s Resource, a greater Huntsville Alabama financial advisor, delivers expertise in family planning, including portfolio management, retirement planning, and risk management.
Securities offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. Advisory Services offered by Investment Advisory Representatives of RFG Advisory, LLC., a registered investment advisor. Private Client Services, Investor’s Resource and RFG Advisory are unaffiliated entities.
