4 Tax Benefits of Giving During the Year

By Guest Blogger | March 29, 2024

How to be intentional and proactive with the way you give to charity

Guest Blog By Jose F. Campos AIF®, EA, CIMA®, CFP®, Managing Partner (CA Insurance Lic#0K64850)

Making gifts to charity uplifts your community, bur there are tax benefits of giving during the year.

As a wealth advisor, I work with families to align their portfolios with their values. But that’s not the only way to help change the world — it’s worth being intentional and proactive with the way you donate your wealth, too.

Many people are concerned that their donations to charity may be reduced by tax or administrative costs, preventing the full amount from reaching the people or causes they really want to help. Happily, there are ways to make the most of every donation to charity.

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Benefits of Giving

1. Help nonprofits achieve their mission.

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Your gifts to Children Rising throughout the year support child learning in Oakland’s poorest neighborhoods, uplifting the community one precious child at a time.

The COVID-19 pandemic has encouraged many of us to take a closer look at our local communities and to consider how we can make a difference. Giving to charity, and particularly locally, can be a powerful way to invest in the people and places that make up our everyday lives. Many of these charities rely on yearly contributions since they sometimes can’t afford to wait until end-of-year donations.

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. That investment also provides a personal return for most individuals, 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 critical.

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.

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 key ways 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.

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. Ways to give through your employer.

Caltrans Expo

Many employers provide ways of giving straight from your salary, making it easy and offering tax benefits.

There are many other ways to give to charity tax-effectively too, such as by donating straight from your salary (before tax is deducted) through a payroll giving scheme; donating shares to charity; or leaving a charitable legacy in your Will. These methods of giving ensure your chosen charities benefit as much as possible from your support and can result in a lifetime of connection between you and the causes you care about.

4. 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:

  1. 100% of the distribution from your IRA avoids income tax.
  2. A QCD applies toward your RMDs for the year you donate.
  3. 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 2024 donation is the most tax-advantageous to you when you file your 2024 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.

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