Give a little, get a little: Charitable contributions and tax deductions

The holiday season is a traditional time to give, not only to family and friends, but also to your favorite charitable causes. And while giving is good for its own sake, it doesn’t hurt to enjoy some tax deductions in exchange for your philanthropic endeavors. These ideas can help you with both.


Giving ideas

You’re undoubtedly familiar with giving back through volunteering and cash donations. But there are many other ways that you can support charities (and potentially qualify for a tax break). Here are eight ideas, plus some tips to keep in mind:

  1. Apparel and household items are welcomed by many non-profits, if they’re in good condition. Any tax deduction will be based on fair market value, not original purchase price.
  2. Vehicle donations have their own set of rules and regulations, so consult both the charity and your tax advisor for details.
  3. Supplies could be nearly anything an organization needs, from crayons for a children’s charity to cleaning supplies for an animal shelter.
  4. Your will. You could leave a financial legacy — cash, IRA funds, or other assets — to your favorite non-profit. Consult an estate planning attorney for guidance.
  5. Life insurance. You could name a charity as a beneficiary of your life insurance policy. Talk to an insurance professional about this and other options.
  6. Stock. If you donate stock that you’ve held for more than a year and that has appreciated, you may qualify for a tax deduction and may avoid paying taxes on your capital gains. Get details from your investment advisor and the charity.
  7. Donor-advised fund.  You can set up a private fund expressly to benefit your favorite non-profit, typically through a mutual fund company, brokerage firm, or community foundation. The minimum initial investment is usually around $5,000, which can be in the form of stocks, bonds, funds, cash, or other assets and may be tax deductible.
  8. Scholarship fund. You can work with a specific university or a community non-profit to set up a scholarship fund. You’ll usually need to contribute at least $20,000, but may be able to do that by making small gifts over time.


Four tips to get a little back

If you’re interested in the possibility of earning tax deductions for your philanthropic efforts, taking these steps can help you prepare for tax day:

  1. Make sure your charity of choice is an IRS-qualified group.
  2. Itemize deductions using Form 1040 and Schedule A. Depending on the type of donation, other forms and even appraisals may be required. 
  3. If you’re volunteering, you may be able to deduct related childcare costs, mileage, tolls, and parking fees.
  4. Keep accurate, detailed records and receipts to support your claims. Make sure to include the charity’s name, and the date and type of your donation.


For more information on charitable tax deductions, review the IRS’s website and always consult your tax advisor. Then go ahead and enjoy the tax benefits — and the warm feeling of knowing you’ve done something good.

To discuss how charitable contributions and tax deductions may affect your financial picture and the financial solutions you choose, talk with us today.

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