Helpful reminders on end-of-year 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.

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 28% of them raising nearly half of their annual budget from their year-end campaigns. When you donate to charity at the end of the year, you not only help nonprofit organizations put more money toward their efforts, but you might be able to benefit as well by maximizing 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 Tom Nucaro, vice president and chief tax officer, and chairman of the community involvement committee at Sammons Financial Group. “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. 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.”

What are charitable contributions?

Most commonly, charitable contributions are money or property you donate 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 deductible contributions include expenses you 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,” adds 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.”

What’s the difference between charitable contributions and gifts?

Charitable donations and gifts are very similar, yet they 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.”

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 you narrow down your 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,” 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 increased demand during the holiday season and greatly value both monetary and food donations, as well as volunteers.”

How does charitable giving affect taxes?

Along with the many incredible benefits of donating to charity, there can be financial advantages for you as well. “When you meet with your tax professional, be sure to discuss any donations you made throughout the year,” says Nucaro. “They can explain the potential tax deductions available for an eligible individual and business 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.

What is the deadline for charitable contributions?

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.”

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

While you may feel the pressure to get in your donations before year end to take advantage of potential tax deductions, it’s important not to deviate from your 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,” 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.” 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.

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Neither Midland National® Life Insurance Company nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor.