Giving back to those in need is a rewarding process that allows you to show support for a meaningful cause. The benefits don’t end there, however. In fact, charitable donations, whether donating items or money, can be considered tax-deductible and can save you money during tax time. It’s important to remember also, that under the Tax Cuts and Jobs Act, taxpayers must itemize in order to get the charitable deduction. Below are a few solid tips to help you maximize your charitable donations:
Know Your Charities
One of the most important factors to consider when donating is the type of organization you’re supporting. To claim a tax deduction for charitable giving, the organization you’re working with must be qualified for tax deductions. For example, charities that are generally qualified for tax deductions are federal, state, and local governments, non-profits like hospitals or schools, or scientific organizations. You can find out if the organization you support is qualified through the IRS website.
For those that seek a greater impact and donate to multiple organizations, a donor-advised fund (DAF) is a great way to do this. A DAF is a fund that allows you to donate money to more than one charity over time. After making the initial contribution to a DAF, your donation is invested and grows tax-free. Once you’re ready to make your contribution, your DAF advisor can assist you with making a grant request. The donor’s benefit is that your contribution is immediately tax-deductible, even if you don’t make a grant request until the following year.
Consider Non-Cash Gifts
Giving back doesn’t always have to come in the form of a cash gift. While cash gifts are a great way to help a charity, donations can also come from goods like food, clothes, and other household items. Another great non-cash option is donating gift appreciated stock and avoid paying long-term capital gains on the stock’s appreciation.
Qualified Charitable Distributions
Qualified Charitable Distributions (QCDs) are a tax-smart way to maximize your charitable donations. QCDs provide you the ability to directly transfer funds from your IRA to a qualified charity and exclude the amount you’re donating from taxable income instead of a regular withdrawal from an IRA account. Another benefit of utilizing QCDs is that they don’t require you to itemize, as we mentioned earlier. They can also count toward satisfying your RMDs for the year.
Always Consider Timing
The timing of your donation is another important factor to consider before making your contribution. Many active charity-givers make their donations more toward the end of the year around holiday time. As the donor, be mindful of when your donations hit; you can even consider giving back during a nontraditional time of year. If you want to make regular cash donations, say monthly, consider enrolling in automatic payments to ease the process, and improve cash flow.
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