In 2022 alone, Americans donated $499.33 billion to charity. This number is expected to increase as we approach the end of 2023, and many people start thinking about giving back. Not only does charitable giving make a positive impact in the world, but it can also have some financial benefits for you come tax season in 2024. In this blog, we'll explore how giving back can help your tax return and discuss some tips for making the most out of your donations.
Did you know that when you donate to a qualified charitable organization, you can deduct the value of your donation from your taxable income? This means that if you donate $500 to a charity, you can reduce your taxable income by $500, which ultimately lowers your tax bill. However, it's important to note that there are limits on how much you can deduct, so be sure to consult with a tax professional for guidance.
One way people like to approach charitable giving is by opening a charitable remainder trust. Setting up a charitable remainder trust to leave property to a charitable organization can reduce your estate taxes similarly to gifting to a charitable organization. When you place the property in a charitable remainder trust, you or your beneficiary receives a specified amount of money for a selected period. Once that time has passed, what is left in the trust goes to the charitable organization.
Another way to save on taxes is to use a donor-advised fund (DAF) for your charitable giving. This means setting up an account and funding it with stocks, cash, or even a private business interest. You will be eligible for a tax deduction while the funds you donate grow and you get to determine what qualified charities you want to support. The benefit of donating appreciated assets is that you get to take a deduction for the fair market value of the appreciated asset you grant to the account while avoiding the capital gains tax that would be due if you sold the asset and donated the proceeds directly.
When it comes to choosing a charity to donate to, be sure to do your research and select a reputable organization that aligns with your values and causes. You can use resources like Charity Navigator or GuideStar to evaluate charities based on their financial health, transparency, and impact.
In conclusion, end-of-year charitable giving donations not only make a positive impact in the world, but they can also have some financial benefits for you come tax season in 2024. By considering the tips outlined above, you can make the most out of your donations and support causes that matter to you.