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Take Note: Make Charitable Donations by December 31!

Dec 06, 2022

As the end of the year approaches, we should all take note of certain deadlines with regard to tax planning. Otherwise, you could end up wishing you had made different decisions when it’s time to file your taxes in the spring. For those of you who plan to utilize charitable donations as a deduction on your income tax returns, here is what you need to know. 


Understand the limits. Fortunately, for both you and the charities you plan to support, the limits on the charitable donation deduction are set quite high. If you donate cash to charity, you can deduct up to 60 percent of your adjusted gross income (AGI)! And if you make non-cash donations, you can claim up to 30 percent of your AGI for those. 


The charitable donations deduction can also be used to reduce capital gains taxes. When you sell assets that you have held for more than one year, capital gains tax will apply to the profit. But you can avoid this tax by donating the non-cash asset directly to charity, while also claiming the deduction for your charitable contribution. 


Donor-advised funds allow you to earn your deduction now, while deciding upon worthy causes later. Maybe you want to earn your tax deduction for charitable contributions by the end of the year, but don’t have time to decide upon a charity. Set up a donor-advised fund, and you can go ahead and make your donation to the fund. This buys you more time to decide upon a worthy cause and disburse the money later. 


Charitable contributions can offset the tax liability of required minimum distributions (RMDs). Once you’re required to begin RMDs from your retirement account, those distributions will be taxed as income. However, you can direct part or all of the withdrawal to a Qualified Charitable Distribution instead. The money won’t be counted as taxable income if you set up distributions this way. 


Remember to save your receipts or card statements. In the event that your return is ever audited, you will need to prove your tax deductions. Save receipts from your charities or make donations by credit card so that you can simply provide your card statements as proof. 


We’re here to help. Call us for more information on year-end financial planning, and we can guide you toward a giving strategy that benefits you and your chosen organizations. 

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