By Make sure your donations work hard for you and the recipient.
By now you should have most of your tax documents in hand and you’re thinking about tackling that task of doing your taxes. Maybe you have some charitable donations to consider, or maybe you’re thinking you want to start a giving plan now to maximize your refund next year. Wondering where to start? We can help.
First, what do you have to give? Most people think first of giving money or cash donations. If you go this route, be sure to keep your receipts – you’ll need them for proof.
Now, maybe you’re thinking that you’re still in the early stages of your career and don’t have much to give. Property is a great way to give without parting with cash. And I’m not talking about real estate! Think clothes, household items, etc., that can be donated to Goodwill, the Salvation Army or a local shelter. Again, make sure to ask for a receipt and keep a list of everything you donated. These items can really add up, so make donations throughout the year to maximize that tax deduction.
Another option, if this applies to you, is to donate long-term appreciated stock. You might have inherited stock, or held some as a child that’s now yours, and maybe you don’t want to pay taxes on it. Well, you can donate some of that stock, deduct the amount you donate, and neither party is required to pay taxes on it. I’ve seen this create a sizable deduction for some, and could even push you into a lower tax bracket.
The last option I’ll talk about usually applies to sophisticated investors with larger portfolios, and this is a donor advised fund or charitable remainder trust. Basically, these allow you to set up pools of money, and throughout the year, control how the money is allocated to charities or causes of your choosing. This can also allow you to time your deductions before the end of the year, rather than waiting until a fundraiser or event.
Before you start any kind of charitable giving, it’s important to make sure your financial life is in good order, and that you give according to a plan. You don’t want to bust your own budget to help an organization that’s near and dear to you. And when you are ready to file your taxes and get those breaks, make sure everything is accounted for and organized – you don’t want to be that person who hands their accountant a shoebox full of jumbled up receipts.
Our team can always help you create a giving plan that will make you feel good about your philanthropic efforts, and that will benefit you in the best way possible. Call us with questions any time.
Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.