Giving has many benefits. In addition to helping others, a donation can be tax deductible if you follow the right guidelines, and can get you in the holiday spirit. Ho, ho, who doesn’t love to play Santa in December?
First, keep in mind that to count as a 2020 tax deductible contribution, your charitable gift must be made to a 501(c)3 organization in good standing, or to a local governing body. A local governing body could be your town’s food bank or board of education. Charities generally have a tax ID number, whereas local governing bodies do not always have a tax ID number. As always, for questions about what is tax deductible, and to make sure your donation will count, please visit with your tax advisor.
Now, let’s get down to top four options for giving or being charitable this holiday season…
Cash, Check or Credit Card
The easiest way to donate to charity is in the form of cash, checks or credit card. Many organizations also have easy options for submitting a donation electronically using a credit or debit card. Keep in mind though, that cash donations are much harder to track and may not count as a tax deductible contribution. A paper trail makes it easy for your accountant, or you, to total up and itemize donations when it comes time to do your taxes. Online donations can be tricky as well, so if your primary reason for donating is for the tax benefits, it’s a good idea to reach out to the charity ahead of time to verify that you’ll be able to get documentation for the upcoming tax submission.
From Your IRA
If you’re still young and making IRA contributions it’s probably not a good idea to donate via IRA. This method mostly benefits individuals who are over 70 ½ years of age at the time of donation. Once you reach that milestone you’re eligible to donate up to $100,000 of your IRA and not have it count as taxable income. Keep in mind, the donation amount gets excluded from your income, and therefore cannot also be listed as a donation on your taxes. You also must keep records of the donation and receipts for future tax purposes.
One of the main benefits to donating to a donor-advised fund is that you can take the tax deduction now, but you don’t have to make a decision about where those funds will be distributed until you’re ready to make that distribution. There’s a lot that goes into setting up a donor-advised fund, so it’s a good idea to talk to someone in Trust and Wealth Management who can help walk you through the process and help administer the account. This option is best for those who have significant funds to donate, usually in the form of appreciated securities from your portfolio. There are administrative and management fees involved, so do your research before diving in to this option. To learn more about donor-advised funds, read our previous blog on the topic at https://blog.centralnational.com/2018/09/learn-about-donor-advised-funds/, visit our website at https://centralnational.com/personal/investments.asp, or find a Trust Advisor near you at https://centralnational.com/whycentral/meetus.asp#trustadvisors who can assist you in your needs.
Goods and Services
Another helpful and easy way to donate to charitable organizations this time of year is by volunteering your time. With the increased number of gift drives and increased number of tangible gifts coming in, there is also an increased need for volunteers during the holiday season. Check to see if your local food pantry could use assistance packing supply boxes this year, or if there is a need for holiday gift-wrappers. Time is not deductible from a tax perspective, but keep in mind that other expenses incurred while volunteering might be. If your travel is significant there’s a chance that the mileage could be deductible on your taxes. If you donate all year round that adds up!
We’re not experts on the tax side of things, and everyone has a different situation, so it’s a good idea to visit with your tax advisor if you’re looking to maximize your charitable gifts this year. The best way to maximize the feel-good benefits this holiday season is to just get out there and do some work! And if you’re drawing a blank regarding what organizations might have the most need this holiday season check with your church, schools and local Chamber of Commerce to see if they know how you can make the most of your time this holiday season. Be careful when donating to an online charity, or those shared by friends and family via social media. The Federal Trade Commission shared some helpful tips for donating wisely during the holiday season in their blog article https://www.consumer.ftc.gov/features/how-donate-wisely-and-avoid-charity-scams