When it comes to minimizing personal tax liability, it helps to think strategically all year long. With few exceptions, the purchases you make, assets you sell, income you earn, and charitable contributions you gift to worthy causes from January to December impact your tax obligations when you file your annual return.
As a result, it is time to think critically about ways in which you can minimize your personal liability as 2023 winds to a close. One of the most significant efforts you can potentially make before December 31 involves charitable giving. What you give away now can very well limit your liability when you file your 2023 return during the first few months of 2024.
In this article, the thoughtful CPAs at Ferguson Timar discuss why charitable giving remains a valid tax strategy as the end of 2023 nears. If you want to take advantage of the tax benefits that charitable giving can afford you and your family, it is time to act and begin plotting a giving strategy for 2024 as well.
How to Make Your Donations Count
Only charitable donations made to tax-exempt organizations can be used as deductions on your 2023 return. Common tax-exempt organizations include:
- Charitable trusts
- Religious organizations
- Nonprofit organizations
- Educational institutions
- Social welfare organizations
Note that not all organizations that operate on a nonprofit basis are tax-exempt. To protect your interests, inquire about an organization’s tax-exempt status before making a donation, and request a receipt of your gift that details the extent of your generosity. The name of the organization and the date upon which you made your contribution also should be confirmed on this receipt.
You can donate to as many charitable organizations as you like to minimize your tax liability for this calendar year, but keep in mind that while some donations are deductible up to 60% of the value of your adjusted gross income, others may be limited to 50%, 30%, or even 20%, depending on the type of organization in question and the kind of contribution you’ve donated. Thankfully, any contributions that exceed this limit can carry over to future tax returns for up to five years.
Getting More for What You Give
Not all charitable gifts are created equal in the eyes of the IRS. This is why some gifts can be deducted up to 60% of your adjusted gross income, and others are limited to lesser percentages of that figure. To make the most out of your donations, consider the following tips:
- Gifting non-cash assets, such as stocks or real estate, can minimize capital gains burdens that would have resulted from the sale of these assets in ways that cash gifts cannot.
- Capital gains benefits can also result from gifts of a percentage of a privately held business interest, restricted stock, and proceeds from portfolio rebalancing.
- You can use a process known as tax-loss harvesting to sell publicly traded securities at a loss and donate the proceeds of the sale to a charitable organization. This will allow you to offset capital gains and/or ordinary income up to $3,000 by virtue of these capital losses.
Depending on how much you have available to donate to worthy causes, you may want to consider establishing a charitable trust too. This is a more complex undertaking, but making this effort can both minimize your tax liability and establish a lasting legacy on your behalf. When you can take deductions related to the trust depends on its structure and how you choose to fund it.
Finally, you can pair charitable giving and your estate planning strategy in a number of ways to affect your tax liability now, throughout the remainder of your lifetime, and after you pass away. If you have not yet explored this opportunity, it’s a good idea to seek guidance accordingly.
Ferguson Timar Can Maximize Your Gifts and Minimize Your Tax Liability
Winston Churchill once said, “We make a living by what we get, but we make a life by what we give.” If the idea of charitable giving to support causes you believe in—while simultaneously minimizing your tax liability—appeals to you, know the client-focused CPAs at Ferguson Timar can help you construct a giving strategy that maximizes the impact of your contributions on your bottom line as well as for those benefiting from your generosity.
Connect with our team today at (714) 204-0100 to discuss ways in which our CPAs can help you give strategically before December 31 and all year long for many years to come.