The holidays are a time for giving, but financial experts want you to know it’s OK to get a little, too.
The past two years have been hard for charitable giving because inflation and high interest rates have strained people’s budgets, experts say. In 2022, when inflation climbed to a 40-year high, total annual giving slumped 10.5% to $499.3 billion after adjusting for inflation, according to the nonprofit Giving USA, which focuses on philanthropy research.
In 2023, inflation-adjusted giving fell a narrower 2.1% to $557.16 billion. With inflation now easing and interest rates dropping, experts hope Americans will continue chipping away at the decline or reverse it this year.
But acknowledging some budgets may still be tight, financial experts have tips for Americans to maximize their dollars for charities and their pocketbooks.
“Many people donate cash,” said Dr. Una Osili, associate dean for Research and International Programs at Indiana University Lilly Family School of Philanthropy. But over the years, there has been “more sophistication around how to give.”
It’s easy to throw a few bucks into red kettles around town during the holidays, but that may not be the best way to donate, experts said.
“If you throw money into a Salvation Army bucket, there’s not much to do there,” said Mark Steber, chief tax officer at tax preparer Jackson Hewitt.
Making a donation that gets you some type of receipt, however, can help you with your taxes.
If you itemize on your income tax return, you can take a charitable deduction for your donation with documentation. Documentation includes a bank record or written communication from the qualified organization containing the name of the group and the amount and date of the contribution, the IRS said.
Instead of cash, Americans might consider directly donating long-term appreciated assets like stocks, mutual funds, bonds, real estate or private company stock, advisers say. That allows you to avoid paying capital gains taxes when you sell the investments, and you get to claim a deduction for the full market value of the donated asset, said Brandon O’Neill, charitable planning consultant at Fidelity Charitable.
“We’ve seen record returns in the stock market, so it’s a good way to give without having to sell your investments, take a tax hit and give fewer funds,” said Amy Theisen, senior strategist for estate and legacy within the Client Needs Research team at Edward Jones.
Just remember, you’re limited to 30% of your adjusted gross income (AGI) for deducting contributions of appreciated securities.
“And because you didn’t write a check, you may have cash available to purchase more stocks,” O’Neill said.
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How you give is just as important as giving, experts said.
Here are some ways advisers say you can support your cause and save money:
Donor advised fund (DAF): A charitable investment account that allows donors to make a charitable contribution into the DAF receive an immediate tax deduction for it and then recommend grants from the fund over time. If the money isn’t granted immediately, it can be invested and grow tax-free, accumulating even more money to donate.
“You don’t have to add to it every year or add to it strategically over a year or two,” Theisen said. “It creates flexibility.”
DAFs were once thought of as being for wealthy elites, but that’s no longer the case, experts said. DAFs are easy and inexpensive to set up, especially compared with establishing a foundation. A foundation requires lawyers to draft legal documents and a financial adviser for the funding, O’Neill said.
“A DAF can be set up within five minutes on our website,” he said. “Depending on where your assets are held, we can transfer them quickly and issue a tax receipt.”
Some companies may require a minimum deposit to open a DAF, but some, like Fidelity Charitable, do not.
“You don’t have to be rich to have a DAF,” O’Neill said, noting the median account balance at Fidelity Charitable is $21,000.
Bunching: Because the standard deduction doubled under the 2017 Tax Cuts and Jobs Act, only about 10% of Americans itemize nowadays and can even benefit from charitable tax deductions, Steber said.
In 2024, the standard deduction is $14,600 for single filers and married persons filing separately, $21,900 for a head of household, and $29,200 for a married couple filing jointly as well as surviving spouses.
If you’re close to exceeding the standard deduction, you can “bunch,” or combine, planned donations into one year to itemize and then take the standard deduction another year to save on taxes, advisers said.
Bunching also could help offset a high-income year, maybe because of a business sale or year-end bonus or if you’re doing Roth conversions, O’Neill said.
Converting a traditional IRA to a Roth IRA typically means paying significant taxes, but front-loading charitable contribution can help offset that income.
Qualified charitable distribution (QCD): People who are 70½ or older can make annual QCDs of up to $105,000 in total, tax-free, to one or more qualified charities directly from a taxable IRA. QCDs aren’t included in your taxable income, so you won’t be pushed into a higher tax bracket. They also don’t require you to itemize your tax return.
For those who are at least 73 years old, QCDs count toward your required minimum distribution (RMD) for the year.
A woman packages donated food at the Los Angeles Regional Food Bank in Los Angeles April 20, 2009. Los Angeles Regional Foodbank is a non-profit charitable organization serving the disadvantaged of the Los Angeles County. REUTERS/Lucy Nicholson (UNITED STATES FOOD DRINK SOCIETY)
Usually, only itemizers can take charitable tax deductions.
If you don’t have assets to donate, you can volunteer your time. “You can’t take a tax deduction for the value of your time,” Steber said. But you may be able to deduct out-of-pocket unreimbursed expenses directly related to your services, such as car mileage, tolls and parking.
You can increase the amount of your donation if your company matches it. But you can’t take a deduction for the company’s match portion, advisers said.
Not all companies match DAF grants, so it’s important to check your company’s matching gift policy to confirm eligibility and details, Theisen said.
Even if you don’t itemize for federal purposes, your charitable contribution may be deductible for state purposes, because many states do not have the same limit on itemized deductions as the IRS does, said Richard Pon, certified public accountant in San Francisco.
Raffle ticket purchases aren’t considered donations, and auction purchases at charitable auctions generally aren’t tax-deductible, Pon said. GoFundMe-type donations aren’t usually for “qualified” charities and so aren’t deductible, Steber said.
Know your limits. Generally, deductions for contributions of long-term appreciated assets held for more than one year are limited to 30% of AGI. Deductions for all other contributions, including cash, are usually limited to 60% of AGI, Fidelity Charitable said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] andsubscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: Giving Tuesday tips to give your cause (and yourself) a boost
