Year-End Generosity: Unwrap the Tax Advantages of Charitable Giving

November 28, 2023

By Scott M. Kogler, CPA/PFS

The holiday season is a time of reflection, gratitude, and excitement for the next year. For many of us, it’s also a season of significant giving. In fact, according to some studies, 30% of all annual giving occurs in December.

Giving may even be part of your family holiday traditions. We donate to local charities, help neighbors, support global needs, and the cause we rally around all year. These gifts could be as simple as buying toys for children or as grand as very sizable monetary donations to international charities.

Gifts can also have significant year-end tax benefits such as:

  • Contributing to a qualified 501(c)(3) charitable organization can make you eligible to deduct the donation amount from your taxable income.
  • Donations may place you into a lower tax bracket, reducing your tax liability.
  • By donating appreciated assets like stocks or property, you can avoid capital gains tax on their increased value.

Overall, you’re supporting causes you care about while optimizing your tax benefits, making it a win-win for both your philanthropic aims and financial well-being.

There are a variety of creative ways to donate too:

  • Cash Gifts: Direct and immediate. Just ensure you have a receipt, especially for larger amounts.
  • Stock Gifts: If you have stocks that have appreciated, gifting them can be a good option, especially if you and the charity both have accounts with the same brokerage.
  • Vehicle Donations: Many charities accept auto donations, with the deduction typically being the vehicle’s fair market value.
  • In-Kind Donations: These are gifts such as clothing, electronics, food, or professional services that fulfill the immediate needs of the charity. (Again, you will need to have appropriate documentation.)
  • IRA Charitable Rollover: For those 70.5 or older, this can be a direct way to give from your IRA, especially if arrangements with your financial institution are already in place.
  • Donor-Advised Funds (DAFs): This is a philanthropic vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund to qualified charities over time for added flexibility.

However, when donating your hard-earned money, ensure the organization is a recognized 501(c)(3). You can double-check their tax-exempt status on the IRS website or ask for their taxexempt documentation.

Remember, to maximize 2023 tax benefits, make sure your donations are in by December 31st.

Bottom line: By being strategic with your charitable contributions, you maximize the impact of your generosity both in the world and on your finances. Contact our team at Davie Kaplan for help creating a charitable giving plan, along with a holistic tax-intelligent financial strategy.

Categories: Tax Planning