We all know that giving can be so much more rewarding than receiving. But when it comes to end of year charitable contributions, you can get the best of both worlds by being generous and getting a charitable contribution deduction too.
Types of Charitable Contributions
There’s a million ways to give, but there’s only a handful of ways to give that are recognized by the IRS as true charitable contributions. You can give cash or non-cash gifts to qualifying organizations:1
- Religious organizations
- Community trusts or foundations
- War veterans’ organizations
- Civil defense organizations
- A state or United States possession
- Fraternal societies
- Nonprofit volunteer fire companies
- Nonprofit cemeteries
Charitable Contribution Limits
In 2021, many people received a $300 deduction without itemizing their charitable contributions. But this year, that’s no longer the case. If you want to receive charitable contribution deductions, itemizing your giving is a must.
This year, you can give up to 50% of your adjusted gross income to public charities (or those qualifying organizations we mentioned earlier). Although, some qualified organizations are only allowed to receive 30%.2 The IRS defines adjusted gross income as “gross income minus adjustments to income.” Adjustments include things like student loan interest, contributions to any retirement accounts, alimony, and more.
But those percentages are just for cash gifts. If you’re looking to give other types of gifts such as stock, appreciated assets, or even property, that number goes up to 60% of your adjusted gross income.3 If your donation exceeds those percentages, the IRS will allow you to carry those gifts over for the next five consecutive tax years.
Are Charitable Donations In The Budget?
While we love charitable giving, we also recognize how important it is to make sure you’re ready for it financially. Here’s how to determine if you’re ready to give charitable donations:
- You don’t have any debt holding you back.
- Giving is in the budget.
- You have at least three to six months of savings in the bank.
If you’re still struggling to pay off debt, stick to the budget, or even worried about what you’ll do when an emergency hits, donating a chunk of your income to charity may not be the best financial move for your family. But donating your time and talents can be just as impactful for the organizations you’re serving until you’re financially ready.
Tax Smart Giving Strategies to Consider
If you’re ready to start making some charitable contributions, here are three strategies to consider to help you get started.
1. Think beyond cash.
When it comes to making the most out of your charitable contribution deductions, you might want to think beyond cash. That’s right, you can give non-cash gifts to charity too—up to 60% of your adjusted gross income.
2. Group your donations over the next few years.
If you recently came into a lot of money, earned an inheritance, or even sold a business, you may want to consider grouping your charitable donations. By grouping your donations, you can itemize your gift for this year and take the standard deductions for the next few years.
3. Consider exploring a donor-advised fund.
A donor-advised fund is like a checking account for charitable giving. You can also use these funds to receive tax deductions on your giving. When you use a donor-advised fund, your contribution grows tax free, your donations are immediate, and you can even reduce capital gains.
Please be sure to contact your advisor and qualified tax professional prior to making any investment decisions.
For more tips on making the most of your charitable contribution deductions, contact SageSpring Wealth Partners and speak with an advisor in your area. We would love to help you make the most out of your charitable giving this year.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions
are those of SageSpring Wealth Partners and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.
To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
