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Year-end giving, or “Giving Season,” refers to the last two months of the year when the amount of incoming charitable donations dramatically increases. Overall, 31% of yearly charitable giving happens in December. Here are some other related facts you may not be aware of yet:

• About 60% of Americans participate in charitable giving.
• Despite generational financial struggles, 84% of Millennials donate to charity.
• Fewer Baby Boomers give annually (72%).
• But the Baby Boomers who do give account for 43% of all funds donated in the U.S.
• Individual Americans gave $319.04 billion last year.
• Companies gave $21.08 billion, which was a 3.4% increase from 2021.

It’s undeniable that charitable giving greatly benefits society as a whole, but did you know it can directly benefit the donor as well? Besides the irreplaceable feeling of warmth and purpose that comes with helping others out, charitable giving can also come with financial benefits for the person donating – such as reducing taxable income. If you’ve been looking for ways to lessen your tax burden, consider increasing your charitable giving in December. This is a good strategy because you will be able to deduct the donations you make during this month from this year’s income. 

The Tax Benefits of Charitable Giving

The U.S. tax benefits for charitable giving were put in place in 1917. Of course, this continually incentivizes the practice, thus increasing overall donations year after year. You won’t find a win-win situation much better than that one! 

How do you take advantage of these benefits? To deduct contributions from your yearly federal taxable income, you will need an itemized list of your donations to qualified charities. More specifically, you must meet the following criteria.

• 501(c)(3) Status: Ensure that the organizations you donated to are eligible. Most charitable contributions to 501(c)(3) organizations are deductible.
• Itemizing Deductions: Charitable contributions are only deductible if you choose to itemize your deductions on Form 1040, Schedule A, instead of taking the standard deduction.
• Documentation: Keep detailed records of your donations, including receipts or acknowledgments from the charitable organization. For donations over $250, you typically need a written acknowledgment.
• Cash and Non-Cash Contributions: Different rules apply to cash and non-cash donations. For non-cash items, like clothing or property, additional documentation may be required, and the deduction is usually based on the fair market value.
• Appraisal for High-Value Donations: If you donate property with a value exceeding $5,000, you may need to obtain a qualified appraisal.
• AGI Limitations: The amount you can deduct for charitable contributions is often limited based on your AGI. In general, individuals can deduct cash contributions up to 60% of their AGI, while non-cash contributions may have lower limits.

If you have not been participating in year-end charitable giving, especially if you are a high-net-worth individual, read the tips below and start implementing them this year or planning for next. ‘Tis the season! This is a great opportunity to give to the causes near and dear to your heart – not to mention you will receive something in return!

Tips for Participating in Year-End Charitable Giving

Stick to a budget.

During this time of year, it’s extra important to track how much money is coming in, how much is going out, and where it’s going. Your expenses will likely increase exponentially due to holiday gifts, travel, food, decorations, and so on. It’s advisable to plan and budget for your usual holiday spending so you don’t go overboard. Once you have that set, you’ll know how much you have left over to donate.

Choose your charities.

You can give all your budgeted funds to one charity or multiple. Many people start by addressing local needs in their community. Consider what causes are important to you then find legitimate organizations that are offering support in these areas. Just be sure to do thorough research since, unfortunately, more fraud happens during the holidays. All charities should have readily available disclosures that you can review. Start by finding out what percentage of an organization’s spending goes to its mission versus other expenses. You want your money to go where it will do the most good.

Consider a QCD.

If you are retired and over 70½ years old, you can direct some or all of your annual required minimum distribution (RMD) to a 501(c)(3) organization. This is known as a qualified charitable distribution (QCD). This is a great opportunity for those who can take advantage of it because you can send the distribution directly to the charity and avoid recognizing it as taxable income.

Ask about donation matching.

Want to give your chosen charities even more bang for your buck without going over budget? Some employers have programs that offer to match the donations of their employees. If you’re unsure about your workplace, it’s worth inquiring. Leveraging these programs to further support the causes you care about is a no-brainer.

Since the practice of year-end charitable giving continues to grow in popularity, we can expect this holiday tradition to last the test of time. After all, it is a great way to honor the sentiments behind this season’s typical celebrations. To maximize the impact of your generosity, discuss your donation plans with your financial advisor at the start of next year. They can help you make a plan in advance and work charitable giving into your strategy in the best way possible.