These Smart Giving Tips Can Lower Your Taxes
Dear Giver, it’s true. The end of the year is a good time for charities. That’s why they ask you for your money at this time the most (along with every kind of company with any kind of product to sell). And it should be a good time for you too.
More than half of all annual donations that go to charities happen at the end of the year according to the National Center for Charitable Statistics, and usually this is because people want to get their tax-deductions maximized.
But you want to be smart with your money at the end of the year. You want to be most ready for tax-season. You want to champion your finances and organize your thoughts. You don’t want to get taken advantage of. You want it to be a win-win for you and for charities.
Is this even possible, you ask?
When is someone going to really help you with your end-of-year finances without asking for something in return? There must be more to it than just giving to charity and writing it off, right?
Here are some honest tips
about smart giving at the end of the year:
1. Know the code. Study the code. Be the code. The United States tax code can ruin your deduction dreams if you don’t know the rules. To be smart about your giving, start by knowing the kind of tax-situation you’re in and how it’ll apply to your wealth, including:
- The kind of asset you want to give
- Your tax rate
- Other donations you want to make in the same year
- If you qualify for the alternative minimum tax
2. That “duh” moment when you know you should have asked for a receipt. It’s obvious, but easy to forget: Make sure you get written acknowledgement of any gift you give, especially if it’s more than $250.
- You must have this in hand by the date you file your tax return or by the deadline for your return (whichever happens first).
(MORE: How to get acknowledgements for different types of donations)
3. The kind of gift you make matters, a lot. It’s nice of you to write a check to your favorite non-profit, but you can also give stock shares—and this could be more beneficial come time for your taxes.
- Giving publicly held stock that you’ve owned for more than year usually entitles you to a full fair-market value deduction.
- When you gift stock, you also avoid any tax you would’ve had to pay when you decided to sell it.
Also to note: If you donate to a public charity, (like Islamic Relief USA) you can deduct up to 30% of your adjusted gross income. If you donate to a private foundation, you can deduct up to 20%.
(MORE: How to donate to charity effectively)
4. Donating property is possible, but you need to know what it’s worth. Get property appraised before you decide you want to donate it, and do this before time runs out.
- If the property is worth more than $5,000, it has to be appraised no earlier than 60 days before you want to donate it.
- You must also have closely held stock appraised no earlier than 60 days before donating if that stock is worth more than $10,000.
Appraisals made before that 60-day window could hurt your deductions!
5. Sometimes giving your IRA assets to charity is a better option. When you leave IRA assets to family members, they may owe a lot of estate and income taxes on that inheritance. But charities don’t have to pay income or estate taxes on IRA assets. It may make better financial sense to leave family other assets that won’t be taxed as heavily, and leave your IRA to charity.
You can make giving charity work for you. It’s just a matter of knowing the rules. These are meant to be tips that are often overlooked and that could make your giving smarter at the end of the year.
As always, you should talk to a tax professional before making any gift.
And, of course, don’t forget to give before the end of the year to help others (and yourself) as much as possible.