Charitable giving is a great way to support your community, make an impact for others, or leave a legacy while saving on taxes. If you have the financial resources to give and find an organization you’re passionate about, now is a great time to give before the year comes to an end. Whether you’re new to charitable giving or have participated in the past, be sure to keep these tips in mind:
Giving to a reputable charity
Unfortunately, fraudulent charities do exist. To ensure a charity is legitimate, ask them for details about their mission and how they’ll use your donation. The charity should also provide you with proof that your contribution is tax-deductible. Visit the IRS Tax Exempt Organization Search to find a list of reputable, tax-exempt charities.
Consider non-cash contributions
While cash may seem an easy way to give, there are other ways to make a charitable donation. You can invest in a charitable gift annuity where you donate a lump sum of money upfront, and the donor charity receives lifetime payouts on a fixed schedule.
If you choose a non-cash contribution, you may be eligible for a partial charitable tax deduction. Another option is a donor-advised fund that allows you to claim a potential charitable tax deduction today for funds you contribute to a charitable investment account.
Also, if you’re older than age 70 ½, you can gift your favorite charities up to $100K from an IRA. This giving is known as a Charitable IRA Rollover which may enhance your tax benefits.
Understand the tax benefits of charitable giving
In the past, you couldn’t deduct charitable gifts if you took the standard deduction. This option was only available to those who itemized their taxes. As a result of the CARES Act, you can claim a deduction of $300 as a single filer or $600 if you’re married, filing jointly for cash donations given directly to a charity in 2021. Charitable giving may also reduce any estate taxes you might owe.
Keep records of your charitable contributions
Whenever you make a charitable contribution, hang on to the receipt, credit card statements, letters of acknowledgment, and IRS Form 8283s for proof. The documents should include the name of the charity, the date you donated, and the amount or value of your contribution.
Consult your financial and tax professionals
A financial professional can help you determine how much you can afford to give to charity. You may also count on a tax professional to share sound advice on tax-saving strategies that can improve your financial situation. These professionals will work together to help you develop a giving plan that includes the benefit of tax savings. Contact them today to get started.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. This material was created for educational and informational purposes only and is not intended as tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by FreshFinance.
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