The end of the year is approaching fast and with it comes peak charity season. Inspired by the upcoming holidays and close of the tax-year, donors eager to make a difference give more during this season than any other during the year. Those eager to capitalize on this dramatically increase collection efforts, finding new and creative ways to capture donations. Charities, organizations, criminals and classic bell-ringing donation collectors all vie for gifts with fervor. Making unplanned donations in any amount, including leftover pocket change, can add up quickly. There is a big difference between making a charitable donation and giving away money. Practice smart giving this holiday season: make an intelligent donation to a tax-exempt charitable organization. Maximize tax benefits for donations with these 6 simple tips for intelligent charitable giving:
1: Evaluating Charitable Organizations
With the influx of generosity during this time of year, there will inevitably be negative elements trying to take advantage. While many charitable organizations offer valuable tax benefits in exchange for donations, some only claim to do so. Before making a gift, take a peek behind the curtain and see if the charity has federal tax-exempt status. Most organizations with tax-exempt status are listed on the IRS website here. Religious entities recognized by the IRS also have 501(c)(3) tax-exempt status, yet remain unlisted in the database. They will have a letter proving tax-exempt status upon inquiry. Any other organizations likely cannot offer tax incentives for donations, regardless of outward claim.
2: Placing a Proper Value on Donated Goods
For cash donations the math is simple: tax-deductible donation amounts are face-value calculations. For all other donations, the responsibility for assigning a value to donated goods falls upon the donor. Donation values are not always equal to the original purchase price (in fact, it’s incredibly rare). Seldom, too, do sentimental and actual value equal each other. The value of donated goods fluctuates along with current market value. Some donation centers can help with valuation on-site, yet may not always be reliable. The IRS maintains an online guide for placing value on donated goods, as do charities Goodwill and The Salvation Army.
3: Donating Assets
Stocks, bonds, and other assets can be gifted to tax-exempt charities. This is a fantastic way to achieve tax deductions without paying additional taxes on appreciated assets at end of year. Donations made to charitable organizations are exempt from the capital gains tax. As with donated goods, the value of donated assets is subject to that of the current market. Speak to a financial advisor for more information on achieving tax exemptions by transferring assets.
4: Itemized deductions Vs. Standard deductions
Many people choose the standard deduction when filling out tax forms without really knowing why. The standard deduction allows for a set tax deduction without proof of donation, or any donation having been made at all. For some, this method is sufficient accounting. For individuals making sizable charitable donations, itemized deductions may create more tax opportunities. Donors gifting or claiming more than the standard deduction should consider itemizing taxes. Keep donation receipts for simpler filing. Itemized tax deductions are much easier to claim with donation receipts as proof. Photos of donated items can be helpful in cases of lost or non-existent receipts.
5: Extend the Clock on Donations
For tax purposes, tax-deductible donations must be made by December 31st. Donations made afterward will apply to the following tax year. This timeline may not always agree with your financial plans or tax bracket.
Not enough capital to donate in time. With all the expenses during the holiday season, it may be difficult to donate. To make a charitable donation before the end of tax season, many people place donations on a credit card. Do not get into serious debt over donations! Only donate what can be repaid the following month.
Not enough charities to donate to. For those with more to give than charities to give it to, consider a Donor-Advised Fund (DAF). A DAF works like a personal grant fund. Donors add to the DAF and then direct the funds to charities at-will. With donor-advised funds, amounts deposited take effect during the immediate tax year. The amount deposited into the account can be left to sit untouched, growing tax-free until directed to a charity for use, by the donor.
6: Planning Ahead
Few things in life work best when left to the last minute. Gain perspective on your options with intelligent financial insights by ProsperiFi. Give smart and gain more. Contact a financial advisor to see how giving can help this tax season. The end of the year is a wonderful time for evaluating finances, checking investments, and setting achievable goals for the next year. For these and more intelligent financial insights, visit ProsperiFi.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.