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Donating money to charitable causes can be beneficial all year long, but many people choose the holiday season to make their contributions. Nearly one-third of annual donations happen in December, often inspired by the holidays, potential tax write-offs, and year-end bonuses. For those who are interested in getting in their charitable contributions before the New Year, Tom Nucaro, vice president and chief tax officer and chairman of the community involvement committee at Sammons Financial Group, shares some helpful guidelines for year-end charitable giving.
Supporting charities at the end of the year can be a great way to spread goodwill and holiday cheer. Many organizations have fundraising events and campaigns during December, where almost a third of nonprofits raise nearly half of their annual budget during the holidays. When you donate to charity at the end of the year, you not only help charities put more money toward their efforts, but you might be able to benefit as well by maximizing potential tax deductions.
When you donate money or property to a nonprofit organization, you give a charitable contribution. Donors can choose a charity that is important to them, including religious organizations, war veterans’ groups, nonprofit schools and hospitals, public parks, the Salvation Army, Red Cross, or United Way. Other examples of deductible contributions include any out-of-pocket expenses accrued while serving as a volunteer or expenses you paid for a sponsored student living with you.
“Remember, you can only deduct your contributions if you make them to a qualified organization,” says Nucaro. “You can ask any organization if they are eligible or use the Tax Exempt Organization Search tool to search for an organization's tax-exempt status. If giving financially isn’t an option for you, don’t worry. Lending a hand this holiday season by being a volunteer is also a great way to make a difference in your community.”
Nonprofits greatly depend on volunteers and charitable donations to help support their cause and make the biggest impact. No matter if your donation is large or small, every dollar can make a difference in helping achieve its mission. Plus, helping others can be deeply rewarding and you’ll likely feel the positive effects too! Your charitable donations can also inspire your co-workers, friends, and loved ones to give to their favorite nonprofits—causing a wonderful ripple effect that spreads throughout communities.
Oftentimes, the most difficult part of donating is choosing which charity! To help narrow down your choice, there are many online resources, including Charity Navigator and GreatNonprofits, that allow you to filter your selection based on the issues they focus on, current campaigns, and their location.
“If you live in an area that was recently affected by a natural disaster or another emergency, there are often numerous relief funds that could use donations to help local families and businesses,” says Nucaro. “Another great cause to consider is donating money to a community food bank or shelter. Food banks often struggle to keep up with the increased demand during the holiday season and greatly value both monetary and food donations, as well as volunteers.”
While they are very similar, charitable donations and gifts are typically treated differently on your tax return. “A charitable contribution is donating money or property to a qualified charitable organization and may qualify for a tax deduction,” explains Nucaro. “A gift is something you give directly to another individual and is not tax deductible. Each year, the annual gift tax limit allows you to give a certain amount of money to people without having to report that gift on a gift tax return or utilize any portion of your estate tax exemption. To better understand the rules surrounding these arrangements, it’s important to discuss gift taxes and donations with your tax professional.”
Donating to charity not only helps boost morale and self-confidence but can also offer financial benefits. “When you meet with your tax professional, be sure to discuss any donations you made throughout the year,” says Nucaro. “He or she can explain the potential tax deductions available for eligible individuals and businesses charitable donations and other possible giving strategies for reducing your taxable income.” If you haven’t had the opportunity to donate this year, you can still do so during December.
If you want to claim a charitable deduction on your taxes this year, all donations must be made by December 31, 2022.
“Be sure to keep records of any donations you make, whether it is a receipt from the organization, a printed receipt from an online payment, or a bank record,” explains Nucaro. “The receipt should include the name of the organization, the amount, and the date of your contribution.”
Even if you feel pressure to make your donations before the end of the year for the potential tax deductions, make sure this does not cause a detour in your financial or charitable giving plan.
“Integrating your charitable giving into your overall financial strategy not only helps make your donations more meaningful but allows you to give with intention while keeping aligned with your own financial goals,” says Nucaro. “Creating a charitable giving plan can also help you spread out donations throughout the year or to multiple causes and incorporate longer-term giving practices, all while staying within your budget. By talking with your financial and tax professional, you can create a personal philanthropic strategy that benefits both you and the charities you love most.”
You can also create a year-round charitable giving plan with a donor-advised fund (DAF). This account lets you manage all your giving from one convenient fund and can help your dollars go even further by allowing you to deposit assets, including cash, bitcoin, mutual fund shares, and stock, to donate to charity. “With a DAF, you can choose an investment strategy for your account where your charitable dollars are invested for potential tax-free growth, allowing your donation to have an even larger impact,” explains Nucaro. “You can then support one or more of your chosen IRS-qualified public charities with grant recommendations from the DAF. Your donations are considered a tax-deductible charitable contribution and you may be eligible to claim an itemized tax deduction for federal and/or state income tax purposes.
Overall, a DAF can help you contribute different assets to charity, maximize potential tax benefits, and potentially grow your account to give more money to your favorite organizations.” Charitable giving is an amazing way to have a positive impact in your community and support the organizations that are working to make the world a better place. If you wish to donate during the holidays every year or want to create a more in-depth charitable giving plan, think about meeting with a financial professional who can help you integrate it into your annual budget and overall financial strategy. Also, consult your tax professional to better understand the tax strategies related to charitable contributions and create a giving strategy that best works for you.
Neither North American Company for Life and Health Insurance® nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor.