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BIRMINGHAM, Ala. (WBRC) – As many people are considering making charitable donations on Giving Tuesday, financial experts say it is important to understand the potential tax implications of their contributions.
According to Financial Advisor Marshall Clay of The Welch Group, the way you file your taxes— whether through a standard deduction or itemizing— determines the extent of benefits you receive from charitable donations.
“The only way that you’re going to experience a tax benefit is if you itemize your tax deductions,” Clay explains.
Another aspect Clay warns that some charities have more costs associated with donating than others. Clay said he advises that people favor charities with minimal administrative costs in order to ensure that the majority of the funds raised directly contribute to their intended cause.
Here are some additional tips for maximizing tax benefits from charitable donations:
- Donate appreciated assets: If you have stocks or other assets that have increased in value, you can donate them to charity and avoid paying capital gains taxes on the appreciation.
- Consider donor-advised funds: Donor-advised funds allow you to make a large charitable donation upfront and receive a tax deduction for the full amount, but you can then distribute the funds to charities over time.
- Bundle your donations: If you make multiple charitable donations throughout the year, consider bundling them together in one large donation. This can make it easier to itemize your deductions and maximize your tax benefits.
- By understanding the tax implications of charitable giving, individuals can make their contributions even more impactful and support causes that align with their values.
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