This holiday season, donate to charity and give yourself the gift of an attractive tax break.
Taxpayers in search of last-minute savings can give directly to the organization or use a tax-advantaged account known as a donor-advised fund.
If you itemize on your taxes – meaning your deductions exceed the 2019 standard deduction of $12,200 for singles and $24,400 for married couples – you can write off the value of your charitable donations.
Avoid the year-end rush, and give yourself these last few weeks to develop a plan with your financial advisor.
"It's important to think about your charitable goals and consider what you're most passionate about, how much you can afford to donate and how to best leverage the tax benefits available," said Brian Ellenbecker, senior financial planner at Robert W. Baird & Co. in Milwaukee.
"Don't wait until the last minute," he said.
Here's what to know to get the biggest tax savings bang for your charitable giving buck.
How you donate matters
Cash is the speediest way, but it's far from the most tax-efficient.
If you were to sell your investments and donate the cash, you'd be on the hook for capital gains.
Instead, transfer the appreciated securities, including stocks and mutual funds, to charity.
"Donors aren't recognizing the gain on the sale of stock," said Lisa Greene-Lewis, CPA and TurboTax blog editor. "They're donating directly to a charitable organization and are able to write that off."
This way, you claim a deduction on your taxes for the fair market value of the investment.
Try a donor-advised fund
Maybe you have multiple causes you'd like to favor with a gift.
That's where donor-advised funds come in. Philanthropists get an immediate tax deduction for gifts to this account, and the balance can be invested and grow tax-free.
Donors can then make grants from the fund at any point in the future to as many organizations as they'd like.
"I can make one administrative effort to fund the donor-advised fund and then easily ask it to send money to charities," said John Voltaggio, CPA and senior vice president at Northern Trust Wealth Management in New York.
The ease of using such a fund gives it a leg up over a private foundation.
"Private foundations are labor intensive; you need a lawyer to create the document, and the foundation must file an annual tax return," said Voltaggio. "Donor-advised funds don't require that."
Think big
Work with your advisor to see how charitable giving can affect your tax planning for the remainder of the year.
Since the standard deduction after the Tax Cuts and Jobs Act has been roughly doubled, donors who claimed a tax break in past years must jump over a higher hurdle to itemize.
Consider "bunching" your gifts – or making at least two years' worth of donations in one – so you can itemize in 2019 and take the standard deduction for the 2020 tax year.
If this makes your charitable giving feel lumpy, using a donor-advised fund can help you ensure smooth granting to your favorite causes.
"With a donor-advised fund, you separate the timing of the deduction from the distribution," said Tony Oommen, vice president and charitable planning consultant at Fidelity Charitable.
"Your charities still get support at the same cadence, but it takes some forward-looking planning," he said.
Another reason to call your advisor: If you're over 70½ and required to take a mandatory distribution from your individual retirement account, it may make sense to donate it to charity.
This move, known as a qualified charitable distribution, satisfies the mandatory distribution without subjecting you to income taxes. The catch: You must coordinate with your IRA custodian to ensure a direct transfer to your charity.
There is no double-dipping: While you can avoid a tax hit on the distribution, you won't be able to claim this gift on your taxes.
Keep solid records
Whether you're giving away clothes and goods, a stock that performed well in 2019 or cash, maintain immaculate records so that you're ready to claim your deduction at tax time.
You can only write off a gift of $250 or greater if you have written acknowledgement of the donation from the charity.
Giving away cash or writing a check? You'll need an acknowledgement letter from the charitable organization or a bank record showing the gift.
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Maybe you're gifting art, collectibles and real estate. If you claim a charitable deduction exceeding $500 for non-cash donations, you'll need to file Form 8283.
If you're claiming more than $5,000 for your donated property – excluding securities – you'll need to provide the IRS with a qualified appraisal of the item, along with Form 8283.
Even donations of furniture and used goods are worth tracking. The Salvation Army and Goodwill have valuation guides, as does TurboTax.
"I take pictures of what I donate so that we have additional documentation," said Greene-Lewis.