Holiday Giving That Gives Back: Tax-Smart Charitable Strategies

During the holiday season, the spirit of giving is in the air. It’s a time to share gifts with friends and family, as well as aid those less fortunate. Charitable contributions not only provide a positive social impact, but they can also offer significant tax benefits. Let’s explore a few tax-smart charitable strategies that make your holiday giving even more worthwhile.

1. Direct donations

The simplest and most common way to donate is by giving cash directly to a charitable organization. These donations are tax-deductible if the organization has a registered 501(c)(3) status. Donors should maintain accurate records of their donations for tax filing purposes, including documentation, bank records, or written communications from the charity that clearly indicate the date, amount, and name of the organization.

2. Donating appreciated securities

Rather than donating cash, consider giving appreciated securities, such as stocks or mutual funds, which provide tax benefits. This method is particularly tax-efficient because it allows one to deduct the current market value of the security, rather than its cost basis. Furthermore, by donating the security, the capital gains tax that may otherwise be applicable when selling it may be avoided. Consult a tax or financial professional before exercising the donation of securities.

3. Charitable gift annuities

A charitable gift annuity is a contract between an insurance company, the donor, and a charity, where the donor makes a sizable gift to the charity through an annuity. In return, a fixed income is paid to the charity for the donor’s life.

4. Donor-Advised Funds

Donor-Advised Funds (DAFs) enable donors to make a charitable contribution, receive an immediate tax deduction, and distribute grants from the fund over time. DAFs can be funded with a variety of assets, including cash, securities, and real estate, enabling the donor to make a significant donation now and decide on the recipient charities later.

5. Volunteering one’s time

While one can’t deduct the value of their time spent volunteering, deducting expenses incurred in the course of their service, such as travel costs, is allowed. Be sure to keep detailed records of these expenses.

In conclusion, the season of giving is a time to make significant impacts, both socially and personally. By adopting these tax-smart strategies, charitable giving may yield tax savings. However, always consult with a tax or financial professional before making any substantial charitable contributions to understand the implications for your individual tax circumstances.

SWG4868873-1025b This information is provided as general information and is not intended to be specific financial guidance.  Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives. The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed.

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