December 1, 2023
For many people, the end of the year is a time for reflection and giving. It’s also a time to think about your taxes. Did you know that you can reduce your tax liability by making charitable donations?
How Charitable Giving Reduces Tax Liability
When you make a charitable donation, you can deduct the fair market value of the donation from your taxable income. This means that you will pay less taxes on your overall income. The amount you can deduct is limited to 60% of your adjusted gross income (AGI) for cash donations and 30% of your AGI for donations of appreciated securities.
There are a number of other ways to maximize your tax benefits from charitable giving:
- Bunching: If you don’t itemize your deductions, you can still deduct charitable contributions, but only up to the standard deduction amount. However, you can bunch your donations together in one year to exceed the standard deduction and claim the full tax benefits of your donations.
- Donating long-term appreciated securities: If you have appreciated securities that you have held for more than one year, you can avoid paying capital gains taxes on them by donating them to charity. Instead, you can deduct the full fair market value of the securities from your taxable income.
- Donating through a donor-advised fund (DAF): A DAF is a type of charitable giving account that allows you to make a large charitable donation upfront and then distribute the funds to charities over time. This can be a good strategy if you want to spread out your tax benefits over multiple years.
Strategies for Year-End Charitable Giving
Here are a few tips for making the most of your year-end charitable giving:
- Plan ahead: Don’t wait until the last minute to make your donations. Take some time to research charities that you are interested in and make sure that your donations are eligible for a tax deduction.
- Get organized: Keep track of your charitable donations throughout the year. This will make it easier to itemize your deductions on your tax return.
- Consider donating non-cash assets: If you have appreciated securities or other non-cash assets that you are no longer using, you may be able to deduct the full fair market value of the assets from your taxable income.
Disclaimer
This article is for informational purposes only and does not constitute legal or financial advice. Please consult with your own tax advisor to discuss your specific situation and determine how charitable giving can benefit you.
