Maximize Your Year-End Tax Planning with Charitable Giving Strategies
As the year comes to a close, many business owners and individuals begin to think about ways to minimize their tax liability while making a positive impact. Charitable giving is not only a way to support causes close to your heart, but it can also be a smart tax planning strategy to reduce your taxable income.
Here are key charitable giving strategies you can use as part of your year-end tax planning:
1. Donate Appreciated Assets
Instead of donating cash, consider giving appreciated assets like stocks, bonds, or real estate. By donating these assets, you avoid paying capital gains taxes on the increase in value, and you can deduct the fair market value of the asset, leading to a larger charitable contribution deduction. This allows you to support your favorite charities while also lowering your tax bill.
2. Bunch Your Charitable Contributions
If you’re close to the standard deduction limit, consider “bunching” your charitable contributions. This means grouping two or more years’ worth of donations into one tax year. By bunching your contributions, you can potentially exceed the standard deduction and claim a larger itemized deduction in that year, maximizing your tax savings.
3. Establish a Donor-Advised Fund
A donor-advised fund (DAF) is a charitable giving account that allows you to make a contribution, receive an immediate tax deduction, and then decide later which charities will receive your donation. This is a great strategy if you want to take advantage of the tax deduction now but haven’t decided which organizations to support. Contributions to a DAF can grow tax-free, and you have flexibility in distributing the funds over time.
4. Make Qualified Charitable Distributions (QCDs)
For those over the age of 70½, a qualified charitable distribution (QCD) is a powerful way to give. A QCD allows you to donate directly from your Individual Retirement Account (IRA) to a qualified charity, up to $100,000 per year, without counting the distribution as taxable income. This strategy also counts toward your required minimum distributions (RMDs), helping you manage your taxable income.
5. Ensure You’re Donating to Qualified Charities
Not all donations are tax-deductible. To receive a deduction, your contributions must be made to IRS-qualified 501(c)(3) organizations. Be sure to verify the status of the charity before donating to ensure your gift qualifies for a tax deduction. You can check the IRS's Tax Exempt Organization Search tool for verification.
6. Consider Charitable Remainder Trusts
If you’re looking for a more advanced giving strategy, establishing a Charitable Remainder Trust (CRT) could be a great option. A CRT allows you to donate assets while still receiving an income stream during your lifetime. Upon your death, the remaining assets go to the charity of your choice. This strategy allows you to benefit from a charitable deduction, reduce estate taxes, and still maintain income from your assets.
7. Don’t Forget Recordkeeping
Proper documentation is essential to ensure you can claim your charitable contributions. Keep records of all donations, whether it's a receipt for a cash donation or an appraisal for donated property. For any donations over $250, you’ll need a written acknowledgment from the charity.
Plan Your Charitable Giving Today
Incorporating charitable giving into your year-end tax planning is a win-win. You get to support causes you care about while reducing your tax burden. At Elitist Business Solutions, we can help you create a charitable giving strategy tailored to your financial goals. Let us guide you through the process and ensure you maximize your tax benefits.
Schedule a consultation today to learn how you can take full advantage of charitable giving as part of your year-end tax plan.