Another tax season has come to a close. For most of my clients, filing taxes involves three emotional stages: panic about the deadline, relief once the return is completed, and, finally, regret that they didn’t find more ways to reduce their taxable income. While there’s no way to make the tax deadline enjoyable, I tell my clients that charitable donations are one of the best ways to make the process more bearable.
Key Takeaways
- You should give early and often to see the full benefits of these deductions.
- Advising clients to give around 10% of their earnings as a tithe or charitable donation can be beneficial both for tax purposes and for supporting meaningful causes.
- Up to 60% of adjusted gross income can be deducted in the name of qualified charitable donations.
- The tax benefits, while important, are secondary to the act of giving.
Spending now to save later is a foreign concept to a lot of taxpayers. People who work with financial advisors are typically looking for ways to invest and grow their wealth, and offering their money up as a donation doesn’t necessarily fit with that mindset. However, through the process of gifting cash or property to qualified causes, taxpayers can lower their taxable income. This won’t create any sort of financial windfall, but rather gives people more control over how their funds are allocated.
What I’m Telling My Clients
I urge my clients to find a meaningful cause and give as much as they can. As a rule, I tell people to give 10% of their earnings as a tithe or charitable donation. Up to 60% of adjusted gross income can be deducted in the name of qualified charitable donations. Ultimately, giving more will only help on the tax front and create more opportunities for the chosen organization.
Tip
Up to 60% of adjusted gross income can be deducted in the name of qualified charitable donations.
The key is planning for this expense throughout the year. Quarterly donations are a great way to stay ahead and keep the contribution size reasonable. In the event an individual donates above the deductible limit, the IRS allows carryforwards for up to five years. This provides a bit of wiggle room in terms of when and how a person offsets their earnings. Furthermore, there are a few basic ground rules that should be kept in mind:
- Request a receipt if you donate more than $250.
- Get an independent, written appraisal for gifts of property in excess of $5,000
- Itemize your deductions on your tax return if you think your total donations will exceed your standard deduction.
The Bottom Line
After working through all the tax jargon, it’s important to remember that charitable giving has an enormous impact on our communities. People with the means to help can change lives just by signing a check. The tax benefits, while significant, are secondary to the actual act of giving.