When it comes to charitable giving, the adage of giving and you shall receive still holds. Giving back remains one of the greatest pleasures in life and there are plenty of ways to do so while also maximizing your financial returns. As a result, charitable giving has grown into an $11 billion annual industry, with wealthy individuals being the main benefactors of this giving craze. But despite the growing popularity of donating to charities and foundations, many people struggle to find options that provide them with both tax benefits and a sense of fulfillment. So let’s take a look at three ways you can maximize your charity money.
Research your charities and know the tax benefits
Tax benefits come from both the donation itself and the organization you donate to. Tax benefits associated with the donation itself include deductions, tax savings, and capital gains, while tax benefits associated with the organization you donate to include tax benefits provided by the charity and a boost in your philanthropic footprint. – Deduction – First and foremost, you should understand that the gift you donate will be deducted from your taxes. Therefore, you should pay attention to the value of your donation when calculating the tax benefit. The value of your donation is based on the fair market value of your donation rather than the price you paid for it, so be sure to keep track of the purchase price of your donation. – Tax savings – The gift you donate will reduce your taxable income, thereby reducing your tax liability. The amount by which your taxable income is reduced is referred to as your “tax savings.” – Capital gains – When you donate stocks that are considered “long-term” (stocks held for more than a year), any increase in the value of those stocks after you purchase them will be taxed at the favorable long-term capital gains tax rate. – Benefits provided by the charity – The charitable organization you choose to donate to can provide you with tax benefits in the form of reduced state income taxes, reduced property taxes, and reduced gift taxes. – A boost in your philanthropic footprint – The more you give, the more it increases your philanthropic footprint. Your philanthropic footprint refers to the amount of money you give and the percentage of your income that you donate to charity.
Diversification is key
While it’s important to give to organizations that align with your values and beliefs, you also want to diversify your charitable giving to maximize your tax benefits, receive an immediate benefit from your donations, and receive a longer-term benefit from your donations. – Immediate benefit – Some of the organizations that provide an immediate benefit to society include volunteer organizations, homeless shelters, crisis lines, and disaster relief organizations. – Long-term benefit – Some of the organizations that provide a long-term benefit to society include nonprofit organizations focused on education, scientific research, and cultural heritage.
Donating stock you’ll no longer use
One of the best ways to maximize your charity money is to donate stock you’ll no longer use. You can donate stock to any 501(c)(3) organization that’s recognized as a charitable organization by the Internal Revenue Service. You can also donate stock to a public charity, including public foundations, donor-advised funds, and charitable trusts. For example, let’s say you have a stock that has increased in value and you’ve decided to sell it. You can sell the stock and then donate the cash from the sale. Alternatively, you can sell the stock and then donate the stock itself. In the latter case, you’ll receive the same tax benefits as if you had sold the stock and donated the cash from the sale.
Conclusion
The adage of giving and you shall receive still holds. Giving back remains one of the greatest pleasures in life and there are plenty of ways to do so while also maximizing your financial returns. As a result, charitable giving has grown into an $11 billion annual industry, with wealthy individuals being the main benefactors of this giving craze. However, despite the growing popularity of donating to charities and foundations, many people struggle to find options that provide them with both tax benefits and a sense of fulfillment. The best way to maximize your charitable giving is to research your charities, diversify your giving, and donate stock you’ll no longer use.
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