The ability to give is indeed a gift in itself. We should all be happy to give what we can without expecting any gift in return!
But… if the government wants to give us a little gift to recognize our charity… well, I think we can accept 😊
Givers out there – are your gifts to charity the most tax-efficient they can be? Are you reducing your taxes by as much as possible? If not, here are a few tips to get there:
1. Track your gifts throughout the year
If you itemize your tax deductions, it is very important to keep track of all donations you gave to charities. At the beginning of each year, create a file either on your computer or in a filing cabinet. Every time you get a receipt or charitable contribution statement, put it in the file RIGHT AWAY.
Don’t wait until Tax Day to dig around your house for statements trying to figure out how much you gave.
If you need help organizing your filing cabinet, start HERE.
2. Have you considered lumping your charitable gifts?
Not everyone can itemize. In fact, 86% of Americans don’t! Therefore, many of us don’t really get a tax break for our charitable gifts. So, what to do??
Consider lumping 2 years’ worth of giving within one year.
Here is an example:
You are in the habit of giving $10,000 to your favorite charity each year. You have no other deductions. Well, as a single tax filer, you automatically get to deduct $12,550 in 2021… so that $10,000 you gave doesn’t make a difference with taxes!
Well, what if you gave $20,000 in 2021 and none in 2022? Then, you would be able to deduct $20,000 from your 2021 taxes and still get to deduct at least $12,550 on your 2022 taxes!
That is $7,450 more of deductions. How fun is that?!
3. Have you heard of a Donor Advised Fund?
Ok. Maybe you read point #2 and that didn’t set well with you.
“Wait, Jessica. My church is used to getting a check from me each month! I can’t just give a bunch of money one year and give nothing the next!”
Well, there is a solution to that. The Donor Advised Fund. The Donor Advised Fund is, in itself, considered the charity for purposes of taxes. In 2021, you can give your $20,000 to the Donor Advised Fund. Then each month through 2021 and 2022, you can use that $20,000 to give monthly to your church!
To your church, it will feel the exact same as normal; they still receive their monthly check. But you get the larger deduction!
4. Do you have any appreciated stock?
You don’t always have to give cash. Many charities (and Donor Advised Funds) are equipped to receive securities.
Why would you do that? Well, if you have a stock with a lot of growth, you can’t sell it without paying a ton of capital gains tax on it. Uck. But, if you use it for charitable giving, neither you NOR the charity pay the tax when its sold!
You have a share of Apple stock worth $130 that you paid $50 for. That is $80 of gain you would normally have to pay taxes on if you sold it. You are already in the habit of giving money to a charity, so instead of cash this year, you give them your Apple stock. They get the full value of the stock without having to pay any tax on the gain!
Listen… I am a proponent of giving. It’s good for our society, our health, and our minds. I am also a HUGE fan of avoiding taxes in legal ways. These strategies provide great ways to achieve both!