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Year End Reminder: Donate to Charity

This article was written by in Charity, Taxes. 6 comments.

The year is quickly coming to a close, and the first priority for many people right now is getting through the holidays with as little stress as possible. Focusing solely on the holidays at the expense of your household’s financial needs can only add to stress later, so it might help to get a few items in order now rather than attempting to manage your year-end tasks in the one week between Christmas and the new year. A few days ago, I suggested changing your 401(k) contribution level now because of the time it takes for changes to take effect, and today, I’m looking at charity.

A tax benefit shouldn’t be the sole reason you contribute to charitable organizations, but there is a federal tax deduction for charitable contributions, and it’s better for a family’s own financial situation to take advantage of this benefit if plans call for charity regardless. Unlike other benefits that allow qualification extensions into the new year, to receive a deduction on this year’s tax return, the organization to which you donate must receive the contribution this calendar year.

Charity BoxUnfortunately, the time you spend volunteering for a non-profit organization is not tax-deductible. While volunteering could benefit an organization more than a moderate financial contribution, the tax code favors gifts of value, not time.

Choose your recipient

Charity isn’t an end-of-year activity. If you value a certain cause, doing what you can throughout the year can be a more effective way of maximizing the benefit you can provide to a non-profit or religious organization. Nevertheless, in busy lives, people often don’t think about finalizing their charitable gifts until the spirit of the holiday giving season is in full-force. If you think about giving throughout the year, you may already have one or more intended benefactors.

If you have a charity in mind or if you need to find one, take the time to ensure the organization is not only legitimate but each dollar you provide will do the most good.

Charity Navigator is an indispensable tool. Using Charity Navigator, you can research any non-profit organization. You can see an evaluation of how efficiently the organization uses donors’ contributions and read the latest financial reports to determine how highly the executives are compensated. Charity Navigator will also help you ensure the organization you choose is a qualified 401(c)3, a non-profit organization recognized by the government.

I like to evaluate what percentage of contributed money is used for marketing, particularly. Marketing is of course very important to an organization, and effective marketing can pay for itself in increased donations, but if too much money is spent on marketing and not projects that directly apply to the organization’s mission, you have to consider that your donation may be more effective elsewhere.

In choosing an organization, consider your own values. You may be aware of an organization whose goals you admire and respect, and can start there. But if not, consider what issues are central to your core beliefs. Would you like to see poverty eradicated around the world? Do you believe people can improve their lives by living in a new home? Are you concerned that budget cuts in education are affecting children’s ability to receive a well-rounded education? Should more resources be committed to helping military veterans? You should be able to find an organization catering to the same issue that you consider most important.

When you complete the donation, be sure to keep a copy of the receipt for tax purposes. The receipt should show how much of your contribution is tax-deductible. If you receive a thank-you gift in return for your contribution, the amount you provide will most likely not be 100% deductible.

Open a donor-advised charitable fund

If you can’t or won’t decide which organization is most relevant to your values and charitable desires, open a donor-advised charitable gift fund. I opened this type of account a few years ago at Fidelity. The charitable gift fund allows an individual to contribute today and receive the tax benefit, while granting donations from the fund to worthy organizations over time. By using the gift fund, I could contribute funds throughout the year, invest in index funds, and assuming the funds appreciate in value, donate even more to the non-profit organization.

Even if the value goes down, most organizations can receive gifts in stocks or funds, so they can choose to sell and use the cash when it’s best for the organization.

You cannot withdraw the money you’ve contributed to your charitable gift fund, however. You can’t use a charitable gift fund as a saving or investment vehicle for yourself. Once you transfer money to your charitable gift fund, it becomes the property of the fund itself or its parent company. That’s the reason you can take the tax deduction immediately rather than waiting until you grant your donation to a non-profit organization.

Each year, I donate to DonorsChoose, an organization that helps teachers receive the resources they need for effective classroom instruction, an organization within my undergraduate university, and a few other organizations that match my values or are in response to important issues.

If you donate to charity, do you do so during the year or only at the end of the year? How important is the tax deduction?

Updated June 23, 2016 and originally published December 7, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar 1 shellye

I donate to several charities throughout the year because it’s the right thing for me to do. I typically don’t give extra cash to those charities at year’s end because I get hit with kids’ birthdays as well as Christmas expenses, and because I’ve supported them throughout the year anyway.

The tax deduction is very welcome, but that’s not the reason I contribute.

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avatar 2 Anonymous

Throughout the year as well as at the end of the year. The tax deduction makes no difference to me.

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avatar 3 Cejay

I do so throughout the year. I regularly donate a small sum to a few causes that I support and believe in. While a nice benefit, the tax deduction is not the reason I chose to donate.

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avatar 4 Ceecee

I have relied on Charity Navigator for years. I like to know how much of my donation is getting through to the real work of the cause. Our family has chosen to cut back on gifts in order to donate more…..

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avatar 5 qixx

When donating to charity i prefer the double deduction method. Since a lot of charitable organisations run their fundraising campaigns into Jan or Feb this works well. What you do is donate in January 2012 instead of December 2011. Then at the end of next year you donate in December. This give you a double deduction every other year and makes itemizing for those years more likely to be beneficial. Since most people don’t itemize the potential savings on tax are there.

Disclaimer: While working for the Boy Scouts of America a few donors would do this because it worked out for them. It has never worked out for me so i just make my donations whenever.

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avatar 6 Anonymous

Your reader may also be interested in what are called charitable remainder trusts. These trusts are used to place monies in trust for the benefit of the donor and the tax-exempt organization. Basically, the donor (and his wife if desired) can be paid an income from the trust for their lives or for a term of years. When this time frame ends the charity named as the residual beneficiary gets the balance in the trust. The advantage for the donor is that they reserve income to themselves and get a tax deduction in the year the trust is funded for the actuarial value of the residue going to charity. There are various types of charitable remainder trusts and the provisions can be fine tuned to meet various needs.
Finally there is something called a charitable lead trust, that works in the opposite way; the charity is paid first and for a number of years and then the balance goes to family or other non-charitable remainder beneficiaries.

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