Tax Savings Strategies Through Charitable Giving

Tis the season for giving- and we want to make sure you know that giving to charity is not only a meaningful way to support causes close to your heart but can also be a strategic method to reduce your tax liability. By understanding the rules and requirements, you can maximize your contributions' impact while securing valuable deductions- giving you the financial freedom to continue to invest in what you are passionate about!

Key Considerations for Charitable Donations

• Cash Donations
  Cash donations are straightforward and can offer significant tax benefits. Ensure you keep accurate records, including dated receipts and bank statements, especially for contributions over certain thresholds.

• Property Donations
  Donating personal or real property, like clothing, electronics, or real estate, allows you to deduct the fair market value (FMV) under specific conditions. Items must typically be in good condition, and additional documentation or appraisals may be necessary for high-value gifts (IRS, 2023).

• Volunteering-Related Deductions
  Although you can’t deduct your time when volunteering you may be able to deduct expenses associated with volunteering, such as travel, cost to attend networking events, meals, organizational dues or supplies directly related to your charitable activities.

• Business Contributions
  Contributions made through your business can sometimes be deducted as business expenses if they directly relate to your operations or offer a reasonable expectation of financial return (IRS, 2023).

Special Tax-Saving Opportunities

• Avoiding Capital Gains Tax
  By donating appreciated assets, such as securities or real estate, you avoid paying capital gains tax while deducting the asset's FMV, provided the charity plans to use the donation directly.

• Maximizing AGI Limits
  Donations to public charities generally allow for higher deduction limits compared to private ones. If your donations exceed the allowable percentage of your Adjusted Gross Income (AGI), the excess can often be carried forward for up to five years.

Donation Recipient Affects Deductions

It is not only the form of the donation but also the recipient that can impact the deduction you are able to take. For example, the percentage of your AGI you are able to deduct varies depending on whether you are donating to a public charity/non-profit organization versus a private charity. Similarly, donating money in exchange for tickets to a sporting event has different guidance around it than donating money in exchange for tickets to a gala or concert.

It is important to be aware of the specific circumstances of your donation and recipient to be sure you are accurately documenting and deducting- and therefore maximizing your charitable contributions and tax savings simultaneously!

How We Can Help

Need help strategizing your charitable contributions for maximum tax benefits? Visibility CFO & Tax Advisors can guide you every step of the way. We will help you understand the nuances of your specific situation.

Charitable giving is a powerful tool for both making a difference and managing your tax obligations. By staying informed about the rules and keeping detailed records, you can make the most of your generosity while ensuring your tax strategy aligns with your financial goals.

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Reference:

Internal Revenue Service. (2023). Publication 526: Charitable contributions. U.S. Department of the Treasury. https://www.irs.gov/pub/irs-pdf/p526.pdf