The holidays are a special time for family and friends. And, for many with enough wealth to share—the ideal time of year for giving back. This is also when many choose to reflect on their financial situation and consider how they can help others through charitable giving. As you plan your end of year charitable contributions, remember that the stronger your financial situation, the easier giving seems to feel!
Giving back can take many forms, from volunteering your time to donating to a charity or causes you support. No matter how you choose to give, it can be a great way to create a positive impact in your community and beyond. If you’re looking for ways to give and to understand the impact of timing, potential tax implications, and other aspects of charitable giving, consider talking with your financial advisor. They can help you determine the best way to make an impact with your charitable contributions.
Ways to Give
When it comes to charitable giving, there are several options to consider. A one-time donation to a charity is a great way to give back. For more extensive or longer-term giving, using a Donor Advised Fund (DAF) or even establishing a foundation are options. Of course, there are also other ways to give back. Donating items such as clothing, books, furniture, or food can be another great way to help those in need, and volunteering time at a charitable organization can be especially meaningful this time of year.
Donor Advised Funds (DAFs) are another possibility. A DAF is essentially a charitable investment account. The donor contributes cash, investments, or assets and can take a tax deduction when the gift is provided. The contribution can be invested and could potentially grow tax-free over time before the funds are distributed. Donor Advised Funds are often seen as a tax-effective way to grant assets to 501(c)(3) public charities. Although the organization has legal control over contributions, the donor still retains certain privileges that can influence how the funds are used.1
The Bunching Strategy
The Bunching Strategy may be another way to maximize your tax savings. This involves bunching several years’ worth of charitable donations into one year so that the total amount donated is enough to exceed the standard deduction. Doing this allows you to benefit from itemizing deductions in the year that you make the donation rather than having to wait until the following year to itemize. This strategy can be especially beneficial for those who are in a higher tax bracket or have a larger amount to donate.2 For guidance on this strategy and other options discussed here, consulting with your tax professional is the best approach.
Finally, some donors may want to consider setting up and managing their own charitable foundation. This allows donors to have a great deal of control over the organization and its funds, and the tax benefits can be considerable. However, this is a more complex option and requires a great deal of time and energy (and a financial advisor’s help) to manage.
While gifting to family members isn’t really charitable giving, now is the time to consider this if you wish to do gifting but haven’t already done so in 2022. This year’s limit is $16,000. This is the amount that someone can gift to each person, tax free for the giver and the recipient. There are IRS lifetime limits and there are other considerations, so it’s highly recommended to talk with your advisor if the idea of this type of gifting is new to you and to make sure it fits with your long-term financial plans.3
When it comes to planning your year-end giving, it is important to consider your overall financial situation. Make sure you have enough money set aside for your own current and long-term financial security before making any donations.
It is important to speak to your financial advisor as they can provide guidance on how giving fits with your financial plans and how to give while taking advantage of any tax benefits that may be available.
No matter how you choose to give back this holiday season, it is important to remember that even small donations can make a big difference. Happy Holidays!
Disclosure: This information is for educational and informative purposes and shall not be considered a specific recommendation. Readers are advised to speak with their advisor at JL Bainbridge to determine their specific recommendations that meet their investment objectives and to review their portfolios. The material being provided is thought to be accurate. However, the information is compiled from multiple resources and may become outdated or otherwise rendered incorrect by new research or corrections without notice. J.L. Bainbridge & Co., Inc., is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. It should neither be assumed that future results will be as profitable or that a loss could not be incurred. For more information related to our firm, please see our disclosure brochures at jlbainbridge.com and https://adviserinfo.sec.gov/firm/summary/108058.
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