As the holidays approach, many people turn their minds to helping the causes they believe in by making donations, getting those last deductions before the year-end. For the charitably inclined, there are strategic ways of giving that can benefit both endeavors. Here are some tips for making the most of your donations.
First and foremost, do your research. Take time to think about the causes that you are most passionate about. It could be a local charity doing work in your own community, or an international charity focused on human welfare. Once you’ve identified specific charities, take a look at them more closely. Use resources like Charity Navigator, Guidestar, CharityWatch, and GiveWell to learn more about each charity.
Use your budget. Decide what amount you should give to your charities of choice. Generally, if you itemize your deductions, making charitable contributions can decrease your tax bill, and with higher tax rates for high‐income earners, there is an increased tax benefit for charitable contributions. Perhaps you’re aiming to reduce your taxable income to a lower bracket, or you’re offsetting an IRA conversion you made this year. Talk to your financial planner to find what amount would strategically work best.
Avoid scams by donating directly on the charity’s website. It seems like common sense, but scams become less obvious to identify each year; e-mails, even phone calls will pose as charity organizations of a worthy cause. After researching your charity, go directly to its website to donate so you know it’s getting to the correct organization.
Not all donations have to be cash. People donate items ranging from various collectibles to real estate. While small local charities might not be the best equipped to accept such gifts, donating appreciated long-term securities to qualified charities can be very beneficial. The charities can sell the assets without owing capital gains to the IRS. You then get a deduction for the fair market value of the gift. Deductions for the fair market value of securities may have limitations, so check with your tax professional for guidance.
Make sure your donations are made before December 31st! Checks must be mailed or cards must be charged before the end of the year for the donation to be claimed in 2017.
Lastly, make sure you follow IRS rules on charitable donations. Gifts must be made to qualified organizations, which you can check here. Donations to family members, other individuals, or political candidates do not count.
Once again, be sure to consult with your advisors to make sure you’re getting the most out of your charitable donations this year.
*Please consult with your tax professional for additional guidance regarding tax-related matters.