What You Need to Know About Year-End Charitable Giving

The end of the year is just around the corner which means it’s time to start thinking about how to make your charitable giving go further if you haven’t already. Since the holiday season is the perfect time to help others, you want your donations to reach as many people as possible.

As you consider where and how much to give, you also want to be aware of how donating can impact your taxes. Here are several things to keep in mind when it comes to year-end charitable giving.

Don’t Give Cash; Opt for Non-Cash Assets

Donating appreciated non-cash assets that have been held for more than one year can usually eliminate the capital gains tax that would have to be paid if the assets were sold first and then donated. This not only increases the amount available for charitable giving by as much as 20% but can also increase tax savings. It’s a win-win on both sides when it comes to year-end charitable giving.

Donate Retirement Assets

If you are 70 ½ and older, you may want to consider making a Qualified Charitable Distribution of Individual Retirement Account (IRA) assets. People in that age group can designate as much as $100,00 per year tax-free from their IRAs to charities through Qualified Charitable Distribution.

This may also reduce the donor’s taxable income in years to come, as well as lower the donor’s taxable estate. If you want to go this route, it’s generally advised to initiate the donation by early December to make sure everything gets processed before the end of the year.

Consider Establishing a Donor-Advised Fund

A donor-advised fund (DAF) allows donors to make a charitable contribution to a public charity as well as receive an immediate tax deduction. Then, donors can recommend grants from the fund to other charities. Donors can contribute as frequently as they’d like and recommend grants to their favorite charities whenever they want.

When you establish a DAF, you can make a gift and qualify for a charitable deduction right away without deciding right away which charities you want to give to. Once the money is donated, assets can be invested and can earn returns without being taxed.

Discover How a Charitable Donation Can Offset the Tax Costs of Converting a Traditional IRA to a Roth IRA

If you’re thinking of converting your traditional IRA to a Roth IRA, a charitable donation can help to offset the tax costs. With traditional IRAs, contributions are usually tax-deductible when they’re made and grow tax-deferred in the account. You get taxed on contributions and earnings when money is withdrawn.

Roth IRA contributions are not tax-deductible. You can withdraw anytime without paying any taxes or penalties if you meet certain requirements. But you may have to pay on non-qualified withdrawals from a Roth IRA if they are beyond your accumulated contributions.

If you convert in a year that you can claim a large tax deduction, like an itemized charitable deduction, it can help to offset the taxes to the Roth conversion. It can allow you to donate to a worthy charity while reducing your future taxes.


Consider Donating Complex Assets

As you think about year-end charitable giving, you may also want to consider donating complex assets. This can be in the form of private company stock, real estate, or even cryptocurrency. The process can be a bit more tedious, but these types of assets often have a low-cost basis.

The Takeaway

When it comes to year-end charitable giving, you want to explore all ideas and think out-of-the-box. Think about the causes you are most passionate about contributing to and consider ways you can make the biggest impact to that organization. In many cases, standard cash donations are not the best choice for several reasons. You want to see which avenues will allow your donation dollars to go the furthest while potentially saving you tax dollars. This will allow you to continue giving in years to come.

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