As the year draws to a close, many people take the opportunity to support causes close to their hearts through charitable donations. For nonprofits, year-end donations can be the lifeline that keeps their programs running. For donors, it’s a chance to support meaningful causes while possibly reducing taxable income. However, how you give can make a difference, both for the charity and yourself. Let’s explore some strategies to maximize your impact.
Note: This information is general in nature. Always consult with tax, legal, or financial professionals before making changes to your charitable gifting strategy.
Choosing the Right Charity
Not all charities are the same, so let’s start with what to consider when choosing the organization and ensuring your gift aligns with your goals.
- The first question to ask is, are they qualified? To claim tax benefits, your donation must go to a qualified 501(c)(3) nonprofit. Websites like Charity Navigator, Charity Watch, and GiveWell are available to help you evaluate an organization’s effectiveness.
- If you’re planning a significant donation, are you concerned with how your donation will be used? Don’t hesitate to ask the organization how it plans to allocate your funds. Many nonprofits will share their priorities, helping you feel confident in your choice.
- Some companies offer matching gift programs, doubling or even sometimes tripling your donation. Be sure to check if your employer participates and if your chosen charity is on their list for matching. It’s a simple way to amplify your impact.
Types of Donations
Although cash donations are welcomed by all charities, they aren’t the only way to give. Many charities also accept non-cash contributions, which not only support their mission but may also provide you with valuable tax benefits.
- Donations of gently used items—like clothing, or furniture—are often welcome. Be sure to get an itemized receipt for tax purposes.
- If you have a car, truck, or boat that you are no longer using, some nonprofits accept vehicle donations.
- While the IRS doesn’t allow deductions for donated time, offering your expertise can still make a significant impact.
Giving Appreciated Assets
Did you know that donating appreciated stocks or mutual funds can be more tax-efficient than giving cash? A letter of instruction to a bank or brokerage can authorize a transfer of shares to your chosen charity. Here’s why it’s worth considering:
- Selling an appreciated asset can trigger capital gains tax, but donating the asset directly bypasses this.
- You may be eligible to claim a tax deduction for the full fair market value of the donated asset.
- Many charities welcome this type of non-cash donation. By donating these assets directly, the charity receives their full value. not their after-tax net value, allowing your contribution to have a greater impact in supporting their mission.1
To donate securities, ask your financial advisor or brokerage to facilitate the transfer. While it’s late to arrange something like this for the current year, consider it as a strategy for the future. It’s a simple process that can make a big difference.
Gifting A Life Insurance Policy
If you have a life insurance policy, making an irrevocable gift of the policy to a qualified charity can be a strategic way to support your favorite cause. Here’s why:
- Transferring ownership of the policy to the nonprofit may qualify you for a current-year tax deduction. Future premium payments you make could also be deductible. (Deduction limits can apply.)
- The policy’s death benefit may be transferred out of your taxable estate, potentially lowering your estate tax liability.2
However, consider your overall insurance needs before pursuing this option. Also, keep in mind that any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments, so be sure to do your research first.
To Claim A Tax Deduction
In order to get a tax benefit from your donations, you’ll need to itemize deductions on your tax return. Things to keep in mind:
- Itemizing only makes sense if your total deductions exceed the standard deduction. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your total itemized deductions fall short, consider "bunching" donations—consolidating multiple years’ worth of giving into a single tax year.
- The IRS requires proof of your donation for it to be deductible. Ideally, the charity will provide a receipt or acknowledgment of the donation. If they can’t provide one, a credit card statement, bank statement, or a canceled check can work. Make sure the document includes the charity’s name, donation amount, and the date of the gift.
- Regardless of the type that you are giving, donations must be made by December 31 in order to take it as a deduction on your taxes for that year. That includes initiating stock transfers or finalizing gifts of tangible assets.
- The IRS limits the amount you can deduct for charitable contributions, so know your deduction limits. The limit is typically 60% of your adjusted gross income for cash gifts to qualified charities but be sure to check the rules for your specific donation type.
Whatever your situation, getting advice from a tax or financial professional can help you give wisely, navigate the rules, and design a strategy that fits your circumstances.
Remember, year-end charitable giving is more than a financial transaction—it’s an opportunity to align your resources with your values, supporting the causes that matter most to you. With a little planning, you can maximize your impact while also benefiting from potential tax advantages.
This holiday season, let your giving reflect the change you want to see in the world.
As always, if you have any questions please reach out! We're always happy to help.
1.IRS.gov, 2023
2.Investopedia.com, March 2, 2023