With the holidays quickly approaching, we’re reminded of many opportunities to give to others. The season is a time of giving and generosity, and charitable donations can have a beneficial effect on taxpayer’s annual federal taxes. For many, this time of year is a reminder to be grateful and to share the wealth we have with others.
Many charitable organizations receive almost half of their annual donations between the months of October and December. A year-end gift can help a ministry continue its mission and may entitle the donor to a tax deduction.
Through charitable giving, a person can reduce the amount of earned income that is subject to tax. These gifts are deductible in the year in which they are made, meaning a donor has until December 31 to send a gift to a qualified charitable organization.
There are a few things to keep in mind when making year-end gifts:
- Remember to get a receipt. The IRS requires written documentation to substantiate deductions for any monetary donations.
- Make sure to verify that the organization has federal tax-exempt status before donating. Otherwise, the gift will not be deductible.
- Know the deduction limits for 2016. You can give as much as you want, but the IRS limits the amount of deductions.
- Keep in mind that any non-cash contributions such as clothing, household items, or electronics greater than $250 require documentation.
While cash is the most common way to donate, there are other methods taxpayers can use to contribute to charities:
- Give appreciated securities, such as stocks, bonds, or mutual funds. When these securities are donated, the taxpayer can avoid capital gains taxes.
- Establish a Donor Advised Fund (DAF). If a person creates a DAF, they may deduct the value of that charitable gift on current year’s taxes but then advise distribution of the funds to charitable organizations in a later tax year.
In addition to tax benefits, donating to a charity sets an example for children about the importance of giving to those in need. Choosing a charity together can be a bonding experience for a family as parents demonstrate the value of compassion to their children. Children whose parents talk to them about charitable giving are more likely to give to charity than children whose parents do not discuss giving with them; click here to learn more. The holiday season is an excellent time to encourage children to find and participate in opportunities to help others.
If you are interested in making a charitable gift or exploring your options for reaping tax benefits, call 866.621.1787 or email plannedgiving@agfinancial.org.
This information is not legal or tax advice. Information is from sources deemed reliable. Information is subject to error, omission, withdrawal, or change. Contact your own legal or tax advisor before taking any action that would have a legal or tax consequence.
