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How to Maximize Charity Tax Benefits

A quick synopsis. 

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People generally make charitable donations out of a selfless desire to help those in need. Indeed, Investopedia notes that charitable organizations survive primarily on donations. Without the financial contributions of donors, many charitable organizations and nonprofits would be incapable of meeting their missions.

Donors may make charitable contributions to help others, but there’s no shame in taking advantage of the tax benefits associated with donating. Laws governing the tax benefits associated with charitable donations can vary from year to year, so it’s best that donors stay on top of the rules, particularly if they plan to prepare their own returns in April. Charitable individuals can keep these strategies on maximizing the tax benefits of donations in mind as they prepare to support their favorite charities.

· Work with a financial planner. As noted, the tax laws governing charitable donations can change from year to year, and some of those changes may be subtle. That’s why it can benefit donors to hire a seasoned financial planner, ideally before making donations. Financial professionals can advise prospective donors about donation strategies that will earn them the most significant tax deductions. Some donations help donors avoid capital gains taxes, while others may not even qualify for deductions. Making sense of the rules is easier when donors work with licensed, experienced financial professionals.

· Do the math before donating. No donation is too small to help a worthy cause, but donors who want the best of both worlds should do a little math prior to deciding how much to donate. Charitable donations beneath a certain dollar threshold may not make a difference in terms of deductions when it comes time to file a return. Donors who know the deduction thresholds may be able to reduce their tax liability by donating a little more than they initially intended, a scenario that benefits both charitable organizations and taxpayers alike.

· Confirm donations qualify for deductions prior to donating. Fidelity Charitable® advises donors seeking to maximize the tax benefits of charitable donations to make sure a nonprofit organization is an IRS-qualified 501(c)(3) public charity or private foundation prior to making a donation. Donations to organizations that do not fit that criteria may not be eligible for deductions, so it’s imperative that donors confirm details about an organization prior to donating.

· Keep digital records and receipts. Even if a donation qualifies for a deduction, taxpayers can only claim it if they keep records of their contributions. Organizations on the receiving end of donors’ generosity may provide proof to donors who lost their original receipts, but that process can take time, particularly if taxpayers wait until April to prepare their returns. When donating to charity, request digital receipts of all contributions, as these are harder to lose and easily accessible come tax prep season.

Donors may not give to charity with tax deductions in mind. But there’s no shame in maximizing the tax benefits associated with supporting a worthy cause.

Please keep in mind this information should not be considered as financial advice. Investment decisions should be based on individual research and consultation with a qualified financial professional. The value of investments can fluctuate, and past performance is not indicative of future results. Always consider your risk tolerance and financial goals before making investment decisions.