End-of-Year Charitable Giving and Tax Strategies

As the calendar winds down, we’re often asked about end-of-year charitable giving strategies by investors who want to reduce their tax bill and do some good.

Last year, Americans gave $484.85 billion to charity, a 4% increase over the year prior. Sixty-seven percent of these donations were given by individuals, with donor-advised funds among the fastest growing forms of giving, according to Giving USA.

Instead, if you have assets of any amount and people and organizations you care about, it’s critical for you to maintain an estate and legacy plan.

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Prepare Your Charitable Giving Plan

When initiating end-of-year charitable giving plans, be intentional by asking yourself the following questions:

• What impact am I seeking to make and why?
• Do I want to support local or global causes (or both) and why?
• Are there deadlines I need to meet (e.g., employer matches, taxes, etc.)?
• Am I effectively tying my charitable giving with my estate legacy planning, including reducing taxable income now and in the future?

Your answers tie your values to your financial planning, optimizing your donation and wealth simultaneously.

Tip: Adviser’s financial planners explain why cash is not always king with charities, as well as and five giving strategies, including split-interest charitable trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process. and private foundations. Download the complimentary report, Making the Most of Your Charitable Giving.

Ensure Your Charity is Legitimate

Scammers are active when donors have their wallets out, like during end-of-year charitable giving or after a natural disaster. Two key scam flags include pressure to donate now and requests for gift cards or wire transfers.

Even if a charity is legitimate, also consider how the organization spends its donations.

To evaluate the legitimacy and performance of a charitable organization, use these five resources:

• BBB Wise Giving Alliance: Alphabetical list of charities, reporting standards on charity finances, appeals and governance.

• Candid: Nonprofit search tool and research.

• Charity Navigator: Nonprofit evaluator, rating nearly 200,000 nonprofits.

• CharityWatch: Charity watchdog, rating over 600 charities and exposing donation abuse.

• National Association of State Charity Officials: List of state agencies to inquire locally about a charity.

The Federal Trade Commission also recommends you follow two strategies before giving to a charity:

#1. Search online for the cause you care about, like “hurricane relief” or “homeless children”—plus phrases like “best charity” or “highly-rated charity.” Once you find a specific charity you’re considering giving to, search its name plus “complaint,” “review,” “rating,” “fraud” or “scam.” If you find bad reviews, it might be best to find another organization.

#2. Check out the charity’s website. Does it give you details about the programs you want to support or how it uses donations? How much of your donation will go directly to support the programs you care about? If you can’t find detailed information about a charity’s mission and programs, be suspicious.

Finally, to confirm if an organization is eligible to receive tax-deductible charitable contributions, use the IRS’s Tax Exempt Organization Search Tool.

Charitable Giving Planning and Tax Deductions

You can donate to any cause you want, of course.

To receive a tax deduction, however, you must ensure your charity qualifies to receive tax-deductible contributions, and itemize deductions on your Schedule A of Form 1040. Charitable contributions also generally can’t be more than 60% of your adjusted gross income (AGI).

You may find, however, that your itemized deductions are less than your standard deduction.

(The tax year 2022 standard deduction for married couples filing jointly is $25,900, single taxpayers and married individuals filing separately is $12,950 and head of households is $19,400.)

In this instance, you could combine, or “bunch,” two years of charitable donations into one year, e.g., combine and itemize your 2022 and 2023 charitable donations on your 2022 taxes, and then take the standard deduction in 2023. There are many factors to consider, including filing status, income levels and much more. Seek guidance from a financial planner before using this strategy.

Tip: For a detailed example of “bunching” read our post, Charitable Giving: Going Big and Paying Less.

Maximize Your Charitable Giving Impact

Many employers match employees’ charitable donations.

If your charity isn’t on your company’s approved list, ask for it to be added. Employers will often add charities if they meet business and IRS standards.

Employers typically require matching requests be submitted during specific time frames, e.g., six months from your donation date to submit a match, or matches must be submitted by February 15 of the year following the donation.

Tip: Make smart tax moves while maximizing your philanthropic impact. Listen to our podcast, Make Sure Your Charitable Giving Adds Up.

4 Tax-Saving Charitable Giving Strategies

There are several tax-saving moves and tools you can use this year, including:

Direct Cash Donations

StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Donations

Donor-Advised Funds (DAFs)

Qualified Charitable Distributions (QCDs)

For a full description of each strategy, read our post Smart Charitable Giving Strategies.

Next Steps

End-of-year charitable giving is a great way to leave a legacy or support an important cause. As wealth managers, we also consider it a wealth management strategy, ultimately helping you reduce your tax obligations. To do so efficiently, however, you need a financial plan.

Contact Adviser Investments anytime for assistance. We pride ourselves on being The Planner You Can Talk To.

And for more philanthropic planning tips, visit our Charitable Giving & Tax Strategies Information Center.