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Tax and Insurance

5 min read

March 22nd, 2021

Tax Benefits of Charitable Giving

Charitable giving is an important part of our society as these donations help fund programs that otherwise would not exist.

For those who can afford to give, it is a great feeling to be able to help those who need it the most. On top of the personal satisfaction, your donations can reduce your taxable income, thus lowering your tax bill.

Understanding the tax benefits of charitable giving is best left up to your CPA who can best assist you in deciding things such as how much to give, which assets, to whom, and when to give in order to provide the most to the charity in the most tax efficient manner.

But, to give a simple overview of charitable giving…

To claim the deduction, your donation must be to a qualified organization and you must have not received anything in return. The general rule is you should be donating to a public, nonprofit company instead of a private, for profit company. You must then show proper documentation of the contributions you made. You will need to provide the charity’s name, the gift’s value, the date, and a statement verifying this. Typically, the charity will send a receipt to document all of this for you.

Non-cash donations have their own specific rules and this is when it becomes really beneficial to work with a tax professional.  However, the short version of it is as follows: if you contribute property owned for over a year, the deduction is equal to the asset’s fair market value.

For example, let’s say you want to donate $50,000 to a local charity.  After reviewing your assets, you come to find you have over $50,000 in Apple stock which was purchased many years ago for only $20,000.  If you were to sell your shares, you would be paying capital gains taxes on the $30,000.  However, if you gift the shares to the charity, you get the tax deduction and avoid the capital gains taxes.  Huge tax savings!

Again, charitable donations are what keep some of the most impactful businesses running.  Every dollar helps!  Fortunately, every dollar given can also help your tax bill!