Tis the Season of Giving: Charitable Contributions and Tax Benefits

Christmas is the season of giving, and charitable donations offer a way to spread joy and make an impact. Not only does giving to charity bring personal fulfillment, but it can provide valuable tax benefits. A financial advisor can help guide you when choosing a charity and help you navigate the tax advantages while giving this holiday season.   

 

What are some of the tax benefits? 

Giving in any capacity is a powerful, selfless act of kindness that makes a difference. We applaud those who give from the heart, motivated to make the world a better place. While most people give because they care deeply about a cause, it’s also wise to be aware of the potential tax advantages that can come with charitable contributions. 

  

According to the IRS, charitable contributions may be deducted up to 50% of adjusted gross income, not including net operating loss carrybacks. Contributions to certain private foundations, veteran’s organizations, fraternal societies, and cemetery organizations are limited to 30% adjusted gross income; however, Tax Exempt Organization Search uses deductibility status codes to indicate these limitations.  

  

There are many ways to give money to charities by using charitable distributions with the mandatory withdrawals from your IRA, while others lend themselves to establishing trusts. If you’re ever unsure of what the tax benefits are ask your financial advisor.  

 

How do I ensure that my contribution is tax-deductible?

If you’re considering a charitable donation and want to ensure it qualifies for a tax deduction, follow these three essential steps: 

• Choose IRS-Approved Charities: Ensure the organization you’re donating to is in good standing and registered as a 501(c)(3) nonprofit with the IRS. Tools like Charity Navigator can help you verify the charity’s status or discover trustworthy options. 

• Donate to U.S.-Based Organizations: To qualify for tax deductions, contributions should go to U.S.-based nonprofits. However, donations to U.S. organizations with international programs may also be eligible. 

• Avoid Personal Fundraisers: While donating to individuals on platforms like GoFundMe or giving to family members is a generous gesture, these contributions don’t qualify as tax-deductible. To secure tax benefits, stick to verified charitable organizations. 

For more tips on maximizing the tax benefits of your charitable giving, consult with a financial advisor who can guide you in aligning your charitable goals with tax planning. 

 

What is the proper documentation I should have? 

To claim a charitable donation on your taxes, you’ll need to back up your contribution with the proper documentation. This paper trail is essential to verify your donation with the IRS. Acceptable documentation includes an official receipt or invoice from the charity, credit card statements, or other financial records detailing your donation. Keeping these records ensures that your claim is accurate and tax-deductible. 

 

Learn More: Year-End Financial Planning: Giving, Taxes, & Long-Term Planning – Season 2, Ep.1  

 

Is there a proper time to make a contribution for tax-advantages? 

Tis the season of giving! But if you’re aiming to receive tax benefits for your charitable donations, timing is everything. To qualify for a deduction in the upcoming tax year, your contribution must be made by the close of this tax year. Make sure to plan your giving carefully so it aligns with your financial goals and maximizes your tax benefits! 

 

What if I want to give my estate?

Maybe you’re a lifelong giver and want to make a lasting impact by donating your estate to charity after you pass away. To do so effectively, it’s essential to create a strategic plan that maximizes the amount your chosen beneficiaries receive while minimizing taxes. 

1. Direct Donation to the Charity: A straightforward option, direct donations allow you to allocate a portion of your estate to a charity, ensuring it benefits from your contribution immediately. 
2. Setting Up a Charitable Trust: A trust can provide a structured way to give, offering tax advantages and greater control over how and when your donations are distributed. 
3. Donating Retirement Assets: Retirement accounts, such as IRAs or 401(k)s, can be excellent tools for charitable giving. By designating a charity as the beneficiary, you can avoid certain taxes that might apply if the assets are left to heirs. 

Each option has its own benefits and tax implications, so working with a financial advisor can help you tailor your plan to align with your philanthropic goals and situation. If you’re ready to discuss how to make the most of your estate giving, contact us at 210 Financial today! 

  

Learn More: Retirement Blueprint: Finding Your 210 Life by Phil Cooper  

Conclusion

Finding the right financial professional is the crucial first step in choosing the best charitable giving method for you. At 210 Financial, our advisors are dedicated to helping you explore charitable options that align with your goals and values. As Phil wisely put it, “One of our greatest blessings is showing our clients how to give to their chosen charitable organizations in a tax-efficient—and sometimes tax-free—manner.” 

From everyone at 210 Financial, we wish you a Merry Christmas and a Happy New Year! Remember, our advisors are always here to answer your questions about charitable giving and its potential tax advantages. Let us help you make a meaningful impact this holiday season! 

 

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