Putting a focus on holiday gifts that give back is just one way you and your family can celebrate the spirit of the season this year. Not only are these annual gifts inspiring, but they also make an impact on others and improve the lives of people in need. Many of these gifts come in the form of a financial contribution ranging from $25 – $1,000 and combat issues related to the environment, education, child hunger, animal welfare, homelessness, veterans and other noteworthy causes.
Making a financial contribution and purchasing meaningful gifts that spread goodwill to others is a great way to show those on your list that you thought of them in alignment with a worthy cause this holiday season. Also, your tax savings could be maximized through your generosity.
American’s Can Pay It Forward and Benefit from Tax Deductions
Total giving to charitable organizations totaled $427.71 billion in 2018, according to Giving USA 2019, the Annual Report on Philanthropy with about 70% of all giving arriving through individual donations across all income levels. The months of November and December are the most popular for charitable giving, and nearly half (46.2%) of all financial gifts are received in December.
One of the easiest ways for you to join in the individual giving trend this year is by merely sharing your money with others. Donating may also entitle you to a charitable contribution deduction against your income tax, and for most people, limits to how much you give won’t apply. Here are a few tips to help you get started.
Research: Most individuals feel better about donating to a charity, organization, or nonprofit cause that is also in line with their values or those they are giving on behalf of. Once you have identified a few groups, make a list and research how your gift may be used and remove those no longer in your preference. Donors can review a charity’s website for an annual report and search nonprofit databases such as GuideStar, Charity Navigator or the Better Business Bureau’s Wise Giving Alliance to evaluate a nonprofit’s public profile and review donor relations feedback.
These questions can help a potential donor consider the best place to send their gift:
- Verify the group’s nonprofit status, a 501(c)(3) designation granted by the Internal Revenue Service (IRS) which makes your donation tax-deductible.
- Google your chosen charity’s news and visit the website.
- Ask about a charity’s mission and goals for the next year.
- Identify where the nonprofit’s needs are most.
- Find out what type of progress the organization has made towards meeting previous goals?
- If donor privacy is essential to you, ask to review the policy related to it.
- Research spending ratios, including executive pay and fundraising compared to program costs, and if there is any local impact from the dollars donated.
- Consider giving an unrestricted donation, which allows the nonprofit to use your money with flexibility and where leaders feel it is needed most.
- Ask to review the organization’s form 990 and an audited financial statement or annual report.
Set and Respect Your Budget: Before you get too excited and commit to giving a charitable donation, look at how much you’re planning to spend on the holiday season as a whole and know how you rate on a financial scorecard. While you have probably set aside expenses for holiday travel, exclusive gifts and outings, your holiday gift-giving budget should be calculated, and hard-earned dollars saved with the same intention.
Just like any spending, remember to stick to your budget and monitor your giving. Be sure you are giving at a time and the amount that works best for you and your family. Even little expenses can add up quickly during the holidays but knowing how much you plan to have left over will help you determine a reasonable charitable giving allotment.
If you find out you are not able to give in dollars this year, plan for the next and consider coordinating a fundraising campaign or volunteering your time and resources to the cause of your choice instead. Most organizations will feel just as grateful for your contributions. And, some out-of-pocket expenses related to your volunteering responsibilities could also end up qualifying as a deduction come next April.
A Special Note for Those Making Significant Donations:
For those looking to make a significant charitable donation, Charity Navigator states “if the contribution is made to a public charity, the deduction is limited to 60% of your contribution base.” This means, if you have an adjusted gross income of $100,000, your deduction limit will be set at $60,000. In addition, “if you contribute $250 or more, then you must prove to the IRS that you made the donation with the date and value-noted on the receipt and a statement by to organization you didn’t receive anything in return.”
Keep All of Your Giving Documents: In order to claim a charitable deduction for a cash gift made, be sure to create an annual organized record of your charitable giving for tax preparation.
The IRS will require one of the following to substantiate a monetary gift:
- a canceled check
- credit card statement
- bank statement
- written acknowledgment from the charity
Noncash Donations Can Create Confusing Deductions: Perhaps you plan to donate a vehicle, or piece of property rather than cash? If so, be true to the value and don’t inflate such donations in deductions. It is also a good idea to seek out an independent appraisal for gifts of property worth over $5,000.
If you donated a used truck worth more than $6,500, then you can only deduct the amount the charity received from the sale of your car rather than the fair market value (although some certain conditions apply).
If you decide to give property which you have owned for more than one year, the deduction’s value is typically equal to the property’s fair market value. If you contribute appreciated property, you are eligible for a deduction for the full fair-market value of the property.
IRA Charitable Rollovers: Investments such as the IRA Charitable Rollover allows individuals who are 70.5 years old to donate up to $100,000 to charitable organizations directly from their traditional IRA or Roth IRA. The donation must be made to a qualified charitable organization. The correct paperwork, including a receipt, will be required to count for the deduction.
Using appreciated assets such as artwork, antiques, stocks, and Donor-Advised funds also serve as charitable donation options for some high-income earners looking to rebalance their taxable accounts.
Best Wishes for A Generous Giving Season and Happy Holidays
If you do plan to donate a large amount of money to a charitable organization this holiday season, it is best to first consult with a tax adviser or financial consultant. These professionals can help determine if any restrictions will apply.
And remember, if giving a lump sum at the end of the year isn’t doable, consider setting up a monthly giving plan throughout the year in preparation for the next. These same tips and guidelines will apply no matter when you decide it is the right time to give charitable donations.
The IRS provides specific guidelines for charitable deductions and more information on which contributions are tax-deductible and which are not.
*This post is sponsored by Tranel Financial Group