Guidelines for year-end charitable giving

During the season of giving and goodwill, many people make donations to charity. Nearly one-third of annual donations happen in December, often inspired by the holiday season, year-end bonuses, and potential tax write-offs. To help maximize the benefits of your generosity, it can be helpful to plan end-of-year donations strategically, keeping in mind the potential tax deductions available, so you can give back while also benefiting your financial future.

What are charitable contributions?

Most commonly, charitable contributions are money or property that is donated to religious organizations, nonprofit schools, hospitals, public parks, war veterans’ groups, charitable organizations, or groups like the Salvation Army, Red Cross, or United Way. Other examples of potentially deductible contributions could include expenses that are paid for a sponsored student living with you or any out-of-pocket expenses accrued while serving as a volunteer.

Remember, you can only deduct your contributions if you make them to a qualified organization. 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.

Why donate to charity at the end of the year?

Charitable giving can be an amazing way to welcome in the holiday season and support the organizations and causes that matter most to you. Many nonprofits depend on this time of year to boost their total fundraising, with nonprofits on average raising 26% of revenue in December. When donating to charity at the end of the year, nonprofit organizations not only benefit by putting more money toward their efforts, but the individual donor may be able to maximize their potential tax deductions.

What are the benefits of donating to charity?

“Nonprofits are vital to our communities and they depend on donations and volunteers to make the biggest impact,” said Marcy Baker, Vice President of Risk & Asset Liability Management, and Chair of the Community Involvement Committee at Sammons Financial Group in West Des Moines. “No matter the size of your donation, every dollar can make a huge difference and you can support the organization in achieving its mission. Plus, helping others can be deeply rewarding and you’ll likely feel the positive effects too. Volunteering your time or making a charitable donation may also inspire your co-workers, friends, and loved ones to give to their favorite nonprofits—causing a wonderful ripple effect that spreads throughout communities!”

Tax benefits of donations

Along with the many incredible benefits of donating to charity, there can be financial advantages as well. “When you meet with your tax professional, be sure to discuss any donations you made throughout the year,” says Baker. “They can explain the potential tax deductions available for eligible charitable donations. And if you haven’t had the opportunity to donate yet this year, you can still do so during December.”

What’s the difference between charitable contributions and gifts?

Charitable donations and gifts are very similar, yet they are typically treated differently on a tax return. A charitable contribution is donating money or property to a qualified charitable organization and may qualify for a tax deduction. 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 a tax professional.

How to decide where to make donations

The hardest part of donating is often deciding which charity to choose. Luckily, many online resources can help narrow down the search based on location, the issues they focus on, and current campaigns. Sites like GreatNonprofits and Charity Navigator can help you find an organization or cause that aligns with your interests.

“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,” shares Baker. “Another great cause to consider is donating money to a community food bank or shelter. Food banks often struggle to keep up with increased demand during the holiday season and greatly value both monetary and food donations, as well as volunteers.”

What is the deadline for charitable contributions?

To claim a charitable deduction on personal taxes this year, all donations must be made by December 31. 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. The receipt should include the name of the organization, the amount, and the date of your contribution.

Estate planning and charitable giving

As the year comes to a close, individuals may be able to make a meaningful impact through charitable giving by leveraging their estate plans. Establishing a charitable trust, for instance, can allow donors to provide for their favorite causes while potentially reducing estate taxes. Additionally, individuals can consider making direct gifts of appreciated assets, which not only supports charitable organizations but also offers significant tax advantages.

It may be possible to incorporate charitable bequests into a will to provide ongoing support to the chosen charities long after one's lifetime. By taking these proactive steps now, donors can help maximize their contributions and leave a lasting legacy that aligns with their personal values and financial goals.

How do I plan for end-of-year donations in my charitable giving plan?

While there may be pressure to get in donations before year end to take advantage of potential tax deductions, it’s important not to deviate from a financial or charitable giving plan just for the tax benefit.

Integrating your charitable giving into your overall financial strategy both helps make your donations more meaningful and allows you to give with intention while keeping aligned with your own financial goals. 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.

Donor-advised funds

Creating a year-round charitable giving plan with a donor-advised fund (DAF) can help a person manage all their giving from one convenient fund and can help those dollars go even further by allowing the donor 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. 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. Making a difference through charitable giving is an admirable endeavor and can be a fulfilling experience for you and your family.

If you would like your donations to become a regular holiday activity or something you do throughout the year, a financial professional can help you work it into your annual budget and your overall financial strategy. Be sure to also consult your tax professional to discuss the tax aspects of charitable giving and how to 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.

The opinions and ideas expressed by individuals providing testimonials are their own. The opinions are not indicative of future performance or success and may not be representative of the experience of other individuals. Marcy Baker was not compensated for her testimonial in this material.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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