A festive mood is prevalent in society during December. The tradition of giving gifts is prominent for family members, friends and coworkers. There’s also the familiar sound when you go around the town those bells of Salvation Army volunteers next to their red cauldrons. Instead of giving away your loose change to help think about how you could think about your philanthropic goals before the year’s end. Your tax return could appreciate it.
December is just one month in the year however, according to The Nonprofit Source 30% of the charitable giving occurs during December. Personally, I have two explanations to this number:
1. “The “goodwill toward all people” feeling that is prevalent during the holidays.
2. Tax advisors
In this article I’ll discuss some methods that you could consider …
a. help your charitable dollars go further,
B. possibly reduce the amount of tax you pay.
C. make you feel more tax-aware and feel like you’re making an impact on causes that are important to you.
CHARITABLE DOLLARS GO FURTHER: DOUBLE YOUR DONATION
The positive information: Employees give approximately $2-3 billion annually through charitable matching programs offered by employers.
The “let’s do better” news 4-7 billion worth of match gifts go unclaimed each year.
Source: Double Your Donation
This approach can be an opportunity to “quick win” to make more impact. Check out your benefits manual to determine whether your company offers match charitable contributions. If they do, check with your human resources department to find out if the employer matches your previous contributions. If not, try to have them match future donations prior to year’s end.
DECREASE YOUR TAXES: BUNCHING YOUR CHARITABLE DONATIONS
Are you planning to itemize the deductions you take this tax year? If yes, think about donating to a charity and getting the tax benefit. It’s an all-win situation. If you want to claim a deduction for an unrestricted donation be aware that you’ll need to list deductions, which should be more than the deduction amount that is standard.
- For those who itemize: There’s a 60 percent Adjusted Gross Income (AGI) maximum deduction in cash for donations.
- If you are not able to itemize, consider a technique known as the bunching.
If you do take your standard deductions, you might have a tax-deductible charitable planning opportunity to itemize the deduction you take by bunching your charitable contributions. Bunching is when you make at the very least two years’ worth of deductible expenses within one year. This lets you increase your deductions from items that are not eligible for the normal deduction. To learn more about how this strategy will reduce your tax burden watch the video below of me using the no-cost Schwab Charitable Bunching as well as the tax Savings Calculator:
Pro Tips: Consider donating more than one year’s worth of your charitable donations to a donor-advised trust fund. It is a charitable vehicle that lets you spread your charitable contributions over several years, while still receiving a larger tax deduction during the year that you contributed to the donor-advised account.
For more details, refer to my blog post Donor-Advised Funds: 6 Reasons I Love Having One.
OFFSET TAXES FROM ROTH RECHARACTERIZATIONS
The market’s performance this year is … quite … the performance has been much better. The bright side to the downturn is that they provide the opportunity to convert a portion (or all) of the pretax IRA into a Roth IRA.
With the conviction and trust in the fact that prices will continue to go higher in the future stocks have in recent times have retreated by about 20 percent from their values. That means, in the event that you converted money from the Traditional IRA to your Roth IRA that you converted to a lower value. If you have a longer-term view and a long-term outlook, you can be confident that the markets will recover those 20% and perhaps more.
The disadvantage of IRA converts is the fact that you need to consider the converted funds as normal income. Therefore, you’ll be able to claim an increased tax liability for 2022 but not earn more. An alternative to offset the amount of tax due is to increase your contributions to charity. You can utilize bunching and a donor-advised account to help coordinate this approach.
QUALIFIED CHARITABLE DISTRIBUTIONS (QCDS)
If you’re older than 70 1/2, you are able to take what’s referred to as QCDs, which are qualified charity distributions (QCDs). This means, rather than taking the requirement minimum withdrawal (RMD) taken from retirement accounts before tax you may donate the maximum amount of $100,000 straight from your IRA into an 501(c)(3) in the current year, to meet the RMD amount. So, you don’t need to include the amount in your taxable income, however you achieve your goal of giving to charity, and you aren’t taxed on the amount you give.
Be aware that you must donate directly to a public charity instead of using a donor-advised fund using this method.
CREATE A FAMILY GIVING TRADITION
Alongside this financial plan, giving back to charity can have an even greater impact on our community than the Income tax form. As you prepare to host family events, begin conversations about what you can give and where to make a donation and why.
Wherever you are on your journey to become a charitable giver you can enhance your strategy in time and incorporate the people you’d like to be part of your journey. I know of families that have gatherings for charitable giving at the close of the year, where everyone in their family — children included — can engage in discussions about how they’d like to invest their time, money, and talents at the final days of the year, and afterward.
For ideas about how to develop an effective giving strategy it is possible to refer to an piece I wrote called Don’t be an peanut Butter Donor.
LET’S TALK CHARITABLE GIVING
If you’d like to have a discussion with me regarding charitable donations and the ways it might impact your financial plan Please set up a charitable giving session in my presence.
If you’re still not an existing client, but would like to talk about giving to charities, I’d love for you to start by having a chat to me. I’d love to assist you with how you can make your giving more effective!
