The Power of Charitable Giving: Maximizing the Impact of Year-End Donations

As the holiday season approaches and the year draws to a close, it’s not only a time for festive celebrations and giving gifts to loved ones but also a time for charitable giving.

How can you make the most of your year-end donations by considering various strategies, including tax benefits?

“Charitable donations, whether big or small, can make a significant impact on the lives of those in need” says Daniel Lerner Executive Vice President, Investment Services of David Lerner Associates, “What’s more, strategic giving can maximize the benefits for both the recipient and the donor, especially when it comes to tax advantages.”

Research found that donations to some recipients for causes like education is down. In contrast, giving to religion grew by over 5 percent between 2021 and 2022 (an estimated $143.57 billion in contributions.) Giving to international affairs is estimated to have grown 10.9 percent over 2021.

The Meaning and Importance of Charitable Giving

Charitable giving is the act of donating money, goods, or services to organizations or individuals in need, typically to support a charitable cause. It has a profound impact on society and is an essential part of building a compassionate and caring community. The act of giving not only benefits those in need but also provides a sense of fulfilment and purpose for the donor.

Charitable giving is not limited to the wealthy. Regardless of your income level, you can contribute to the causes you are passionate about, making a meaningful difference in the lives of others. The end of the year is an ideal time to reflect on your blessings and extend a helping hand to those less fortunate.

Strategies for Maximizing the Impact of Year-End Donations

1. Identify Your Values and Interests:
   The first step in maximizing the impact of your charitable giving is to identify the causes that resonate with you the most. Think about the issues that are close to your heart, such as education, healthcare, poverty alleviation, environmental conservation, or animal welfare. Focusing your donations on areas you are genuinely passionate about will ensure a more meaningful impact.
2. Research and Choose Reputable Organizations:
   Not all charitable organizations are created equal. Take the time to research and choose reputable organizations that are transparent about their goals, financials, and the impact of their work. Websites like Charity Navigator and GuideStar provide valuable information on various non-profits, allowing you to make informed decisions.
3. Leverage Matching Programs:
   Many employers offer matching gift programs, where they match their employees’ donations to eligible non-profit organizations. Take advantage of this opportunity to double the impact of your contributions.
4. Consider Donor-Advised Funds:
   Donor-advised funds (DAFs) are a popular tool for charitable giving. These funds allow you to contribute assets, receive an immediate tax deduction, and then recommend grants to your chosen charities over time. DAFs offer flexibility and can be particularly beneficial for year-end giving.
5. Appreciated Securities:
   If you have investments in stocks or other securities that have appreciated in value, consider donating them to charity. This not only allows you to support a cause you care about but also offers potential tax benefits, such as avoiding capital gains tax.
6. Qualified Charitable Distributions (QCDs):
   If you are over 70.5 years old and have an individual retirement account (IRA), you can make a charitable contribution directly from your IRA to a qualified charity. This donation can satisfy your required minimum distribution (RMD) and may have potential tax advantages.

The Tax Benefits of Charitable Giving

Charitable giving is not only about making a difference in the world; it can also be a smart financial move with potential tax advantages.

Here are some key tax benefits to consider when making year-end donations:

1. Charitable Deductions:
   If you itemize your deductions on your tax return, you can deduct your charitable contributions from your taxable income. This reduces your overall tax liability.
2. Long-Term Capital Gains Tax:
   Donating appreciated assets, such as stocks or real estate, allows you to avoid paying long-term capital gains tax on the appreciation. This can be a significant tax savings, especially for high-value assets.
3. Donor-Advised Funds:
   When you contribute to a donor-advised fund, you receive an immediate tax deduction, even if the funds are disbursed to charities in future years. This can help manage your tax liability.
4. Qualified Charitable Distributions:
   Making charitable donations directly from your IRA can satisfy your RMD for the year, which is typically taxable, effectively reducing your taxable income.
5. Carryover Deductions:
   If your charitable deductions exceed the annual limits, you can carry forward the excess deductions for up to five years, providing additional tax benefits in future years.

Practical Tips for Maximizing Tax Benefits

To make the most of the tax benefits associated with charitable giving, consider the following practical tips:

1. Keep Records:
   Ensure you keep detailed records of your donations, including receipts and acknowledgments from the charities.
2. Consult a Tax Advisor:
   It’s a good idea to consult with a tax advisor or financial planner to maximize the tax benefits of your charitable giving, especially if you have complex financial situations.
3. Review Your Asset Portfolio:
   Assess your investments and consider which assets are best suited for charitable donations. Donating appreciated assets can provide significant tax advantages.
4. Plan Ahead:
   Don’t wait until the last minute to make your year-end donations. Planning your contributions in advance can help you make more informed decisions and avoid any rush.

The act of charitable giving is a powerful and meaningful way to make a positive impact on the world and your own financial well-being. By strategically planning your year-end donations and considering the tax benefits, you can maximize the impact of your contributions

Whether you support local charities, international organizations, or causes close to your heart, your generosity has the potential to create a brighter future for those in need and bring a sense of fulfilment to your own life. As the year comes to a close, consider how you can make a difference through the power of charitable giving.

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Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.