‘Tis the Season of Giving! 4 Strategies to Consider

There’s something about the holiday season that inspires people to embrace the gift of giving. Planned strategically, that gift can actually pay off in more ways than one, extending all the way to your tax bill. That’s right — you can give back to the greater good and reduce your taxable income simultaneously. It’s a win-win outcome for everyone.

Whether you’re already an avid philanthropist or just getting started, here are a few tax-savvy charitable giving strategies to consider this year.

1. The Simple Deduction

Is there a cause you truly care about? A favorite charity you regularly support? You can deduct contributions you make to charitable organizations against your income tax, so long as you itemize your deductions.

Qualified organizations include nonprofit schools and hospitals; veterans’ organizations; federal, state and local governments; and churches or other religious organizations, among others (you can see a full list of qualified organizations on the IRS’s website). If you’re uncertain whether your favorite charity qualifies, simply ask one of its representatives before making a donation or consult with your tax advisor.

You’re generally allowed to deduct up to 50 percent of your adjusted gross income (AGI) in a given tax year, though 20- and 30-percent limitations apply in certain cases. If your contributions surpass the 50-percent AGI limit, the IRS will allow you to carry over and use the excess amount for up to five years.

Good recordkeeping is obviously important in all tax planning, but it’s especially crucial when making charitable contributions. You must keep evidence and documentation of any cash-based contribution you make to a qualified charity, regardless of the amount; this can take the form of a bank record or written acknowledgement from the organization, stating its name, the amount and date of the contribution.

For donations exceeding $250, you will need to keep written acknowledgement from the qualified charity with the amount and description of your contribution. That record also needs to state whether you accepted any goods or services in exchange for the gift; the organization will also need to provide a description and a good-faith estimate of the value of those goods or services.

holiday-giving-made-smart

2. Declutter, Donate and Deduct

Your charitable gift doesn’t have to be cash-based; plenty of organizations like the Salvation Army and Goodwill accept noncash items, such as clothes, furniture and other home goods, most of which can earn you a deduction.

To figure out how much you can deduct for a noncash gift, you will need to determine the fair market value (FMV) of the property at the time you made the donation. If your contribution is over $500, you will need to keep a detailed acknowledgement from the organization you donated to (similar to the document referenced above) and also report the donation in Section A of Form 8283 (Noncash Charitable Contributions). You’ll need to attach this document to your return.

If your contribution is over $5,000, you’ll need to keep the aforementioned written acknowledgement, report the donation in Section B of Form 8283 and keep documented evidence that a qualified appraisal was administered. If your contribution is over $500,000, you’ll need to attach the qualified appraisal to your return. Enlist the help of your tax advisor throughout this process, as he or she can help you organize all of the appropriate documentation. You can also visit the IRS’s website for more information.

3. Offload Your Stocks

One of the most tax-efficient ways to give to charity is by donating long-term appreciated securities, or any stocks, bonds or mutual funds that have significantly appreciated in value over time.

If you’ve owned appreciated securities with unrealized gains for more than a year, you can donate them directly to the qualified charity of your choice and take a charitable deduction equivalent to the FMV of the assets on the day you donated them. The best part? You don’t need to pay capital gains tax on the securities. If you need more time to find a charity to support, but still want to offload the shares at a certain value, you may consider using a donor-advised fund (DAF). You can learn more about DAFs here.

4. Retired? Remember the QCD Rules

The qualified charitable distribution (QCD) rules — which Congress permanently enacted into the tax code at the end of last year — allow you to donate up to $100,000 to a qualified charity from your individual IRA without reporting the distribution as income on your tax return. While you do need to meet specific requirements to take advantage of this provision (click here to find out if you’re eligible), it’s a great way to ramp up your charitable donations during retirement, while keeping taxes at bay.

Are you in the giving spirit now? Before you make any moves, be sure to consult with a qualified tax advisor, especially if this is your first foray into charitable giving. He or she can help you make the right decisions for your tax situation and help ensure you get the most out of your donations when tax time rolls around.

Now that you’ve planned your philanthropic efforts for the year, it’s time to sit back, have a cup of hot cocoa and bask in the joy of the season. Happy holidays, everyone!

Want to make the most of your charitable giving?

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Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Barry S. Krostich
Barry S. Krostich

CPA | Director, Fuoco Group

Barry S. Krostich, CPA, is a director at Fuoco Group, based in Hauppauge, NY. Barry consults on auditing, accounting, compliance and tax issues for individuals and businesses across a range of industries, from healthcare to real estate to construction.

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‘Tis the Season of Giving! 4 Strategies to Consider

time to read: 4 min