3 Benefits of Year-end Giving During the Holidays
By Children Rising | December 12, 2022
How to Make Sure Your Holiday Giving Provides a Full Heart and Tax Advantages
Guest Blog By Jose F. Campos AIF®, EA, CIMA®, CFP®, Managing Partner (CA Insurance Lic#0K64850)
As the holiday season fills us with hope and joy for the coming year, many Americans think of ways they can use their personal wealth to uplift those less fortunate or make an impact on the world around them. Year-end giving is also an important time for nonprofit organizations, those big-hearted groups that are doing the work in the community. “The giving season” is a perfect pairing of goodwill and good works.
“As you consider making a charitable donation this holiday season, it helps to understand ways to ensure your contributions are tax-advantageous.”
As you consider making a charitable donation this holiday season, it helps to understand the benefits of supporting your favorite cause now, and some of the ways to ensure your contributions are tax advantageous.
Benefits of Year-End Giving
1. Donations to charities are the best way to remember the true meaning of holidays.
Donating is the ideal way to reconnect with the spirit of the upcoming holidays – showing generosity and thanks and helping others less fortunate than ourselves. Donating as a family promotes bonding and empathy and teaches long-term giving traditions. Set an example for your children showing them compassion and appreciation for people who are less fortunate.
2. Reap the tax benefits.
Your charitable donation is an investment in the community more than a gift. You are not only contributing to the financial health of a nonprofit organization. For most individuals, that investment also provides a personal return, which becomes apparent when it’s time to file your income tax return. Given the changes in the tax code with the Tax Cuts and Jobs Act (TCJA) during the Trump Administration, it made it harder to benefit from donating from a tax perspective. Therefore, establishing a well-executed gifting plan has become more important.
“Nonprofit organizations rely on end-of-year giving to deliver their much-needed services.”
3. Help nonprofits achieve their mission.
Half of all American nonprofits receive most of their annual donations in December. Clearly, nonprofit organizations rely on end-of-year giving to deliver their much-needed services.
How should you donate?
All the elements in your financial plan should be optimized for you and your life, and charitable giving should be no exception. You can bring intention to your charitable giving by making the most of tax-smart gifting strategies and building giving as part of your regular financial plan, not just during the holidays.
“You can bring intention to your charitable giving by making the most of tax-smart gifting strategies and building giving as part of your regular financial plan, not just during the holidays.”
If you are like most people, you likely write a check or donate cash to charities. While that donation does help your organization of choice, there are additional ways to reduce taxes by improving your giving strategy and tailoring it to you. Let’s look at a few keyways to bring more intention to the way you give this year.
1. Donate appreciated assets.
Instead of selling appreciated stock and recognizing a taxable gain, you can donate the stock directly to a charity or a donor-advised fund. When you donate the stock instead of selling it first, you can transfer the full value without incurring a tax liability. That means more of your money can go towards supporting the cause you care about.
This process works even if you were planning to give cash without necessarily selling the stock. Suppose you bought or inherited a stock years ago that accumulated a sizable gain. Instead of giving cash, donate the same value of the appreciated stock instead.
2. Donor-Advised Fund.
A donor-advised fund (DAF) allows you to make charitable donations into an investment account that can grow over time. You still get to deduct the contribution, but you can invest the donation within the DAF and later decide to distribute all or a portion of the account to a qualified charity.
This process can help establish a family legacy of charitable giving. It’s also a great way to compartmentalize your giving for the year or multiple years.
3. Qualified Charitable Distribution.
If you are subject to take a required minimum distribution (RMD) and make regular charitable donations, then a qualified charitable distribution (QCD) can be a big tax break for you.
A QCD is a distribution made directly from your IRA to a charitable organization.
Three major benefits of a QCD include:
- 100% of the distribution from your IRA avoids income tax.
- A QCD applies toward your RMDs for the year you donate.
- A QCD may allow you to better manage your taxable income for the year to help avoid Medicare surcharges or bumping up into a higher federal tax bracket.
Notice here that the QCD is not a deduction, but rather the distribution isn’t included in your taxable income. That means you can take advantage of QCDs even if you don’t itemize deductions.
Please ensure that your 2022 donation is the most tax advantageous to you when you file your 2022 tax return. If you need help, please do not hesitate to contact a financial professional before the end of the year. We would be happy to answer any questions you may have. You may reach out to us on our website https://www.ctsinnovative.com/ and click the Contact button.
If you are interested in volunteering, or making a financial gift, learn more about opportunities with Children Rising.
Jose Campos (CA Insurance Lic#0K64850) is a Registered Representative and an Investment Adviser Representative with/and offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products & services are offered through Innovative Investment Partners, LLC or CES Insurance Agency.
The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This material is intended for informational/educational purposes only and should not be construed as an investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. Innovative Investment Partners does not provide legal or tax advice. If you would like accounting, tax or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Innovative Investment Partners, LLC unless a client service agreement is in place.