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Year-End Charitable Gifting: Financial Considerations to Keep in Mind
Understanding Year-End Charitable Gifting
As the calendar year comes to a close, many individuals review their finances and consider making charitable contributions.
Year-end charitable gifting can support causes you care about while also interacting with your broader financial and tax picture.
Understanding the rules and trade-offs involved may help you approach charitable giving with greater clarity.
This article is intended for educational purposes only. It does not provide tax, legal, or investment advice.
Tax laws and personal circumstances vary, and individuals are encouraged to consult qualified tax or financial professionals before making changes to their charitable giving strategy.
Evaluating Charitable Organizations
Confirm Qualified Charity Status
Before making a donation, it is generally important to confirm that the organization qualifies as a tax-exempt charity under
Internal Revenue Code Section 501(c)(3). Contributions to organizations that do not meet this requirement typically do not qualify
for federal income tax deductions.
The IRS maintains a searchable database that allows taxpayers to verify whether an organization is eligible to receive tax-deductible contributions.
Review Transparency and Effectiveness
Some donors choose to research how charities use donated funds. Independent nonprofit evaluators such as Charity Navigator,
CharityWatch, and GiveWell provide publicly available information about governance practices, financial reporting, and program spending.
For larger gifts, it may also be reasonable to ask the organization how a donation is expected to be used. This can help align the gift with the donor’s charitable priorities.
Employer Matching Programs
Individuals who are still working may want to check whether their employer offers a charitable contribution matching program.
Employer matching can increase the total amount received by a charity without requiring an additional personal contribution,
although program rules and eligible organizations vary.
Itemizing Charitable Contributions
Documentation Requirements
To claim a charitable deduction on a federal income tax return, taxpayers must generally itemize deductions on IRS Schedule A.
This means keeping records of each donation made during the year.
Acceptable documentation may include written acknowledgments from the charity, receipts, bank statements, or credit card statements.
According to the IRS, records should typically show the name of the organization, the amount of the contribution, and the date it was made.
Standard Deduction Considerations
Itemized deductions may only provide a tax benefit if their total exceeds the standard deduction for the applicable tax year.
For some households, the standard deduction may be larger than the total of itemized expenses, including charitable contributions.
As a result, some donors find it helpful to review current standard deduction thresholds before assuming a charitable gift will affect their tax outcome.
Non-Cash and Appreciated Asset Donations
Donating Appreciated Securities
Charitable contributions are not limited to cash. Many qualified organizations accept non-cash gifts, including publicly traded securities.
Donating appreciated assets may be worth exploring, particularly when securities have increased in value over time.
Selling appreciated securities can result in capital gains taxes. In contrast, transferring shares directly to a charity may allow the donor
to avoid recognizing capital gains while potentially qualifying for a deduction based on the asset’s fair market value, subject to IRS rules and limits.
Transfers are often completed by providing written instructions to a brokerage firm. Procedures and timing requirements can vary,
so coordination with the financial institution and the charity is typically required.
Valuation and Deduction Limits
The deductibility of non-cash gifts depends on several factors, including the type of asset, how long it was held, and the donor’s adjusted gross income.
Additional IRS forms may be required for higher-value non-cash contributions.
Using Life Insurance in Charitable Planning
Gifting an Existing Policy
Some individuals consider using life insurance as part of a charitable gifting strategy. An irrevocable transfer of an existing life insurance policy
to a qualified charity may result in a current-year income tax deduction, subject to applicable limits.
If the donor continues to pay premiums after the transfer, those payments may also qualify as charitable contributions.
In certain cases, removing the policy from the donor’s ownership may reduce the size of their taxable estate.
Important Considerations and Risks
Life insurance strategies involve additional considerations, including insurability, ongoing premium obligations, and policy expenses.
Life insurance policies include mortality costs and administrative charges, and surrendering a policy may have tax consequences.
Any guarantees associated with a life insurance policy depend on the financial strength and claims-paying ability of the issuing insurance company.
Individuals may wish to carefully review policy details with qualified professionals before making irrevocable decisions.
Bringing It All Together
Year-end charitable gifting can be a meaningful way to support organizations while interacting with broader financial and tax planning decisions.
Whether giving cash, appreciated assets, or other property, understanding documentation requirements, deduction rules, and potential risks
may help donors make informed choices.
Because tax laws and personal circumstances can change, reviewing charitable plans with a tax, legal, or financial professional may provide additional clarity before year-end.
