This is the time of year we’re supposed to be our best selves.
Kids know Santa is watching. Adults — hopefully — are touched by the generous nature of the holidays. Ads are all about giving (even if the $50 oversized bow you see in every car ad is a representation of $50 set on fire).
Luckily enough, this giving season dovetails nicely with tax advantages.
Remember — we’re at the end of the year now, people. And most of the numbers you’ll use to pay taxes will lock down on Dec. 31 (IRA contributions notwithstanding).
And charitable giving is one of the best tools out there for lowering your taxes.
That’s why today I want to highlight four of the best ways to give — and save — this season.
Don’t Spend a Thing!
Most everyone has a closet full of stuff they never use anymore. And even more of us are about to get wardrobe additions when Christmas rolls around. So why not make some room by getting rid of your old stuff? And getting tax benefits in the process!
When you donate to The Salvation Army or Goodwill, you’ll get a receipt — sometimes itemized, usually not. Next April, when you fill out your taxes, you’ll see that programs like TurboTax already have values for donated goods automatically entered. It can be a few bucks for used T-shirts… or over $100 for big pieces of furniture.
Point is, a good cleanup can not only free up your space for more valuable things… but can also be worth thousands of dollars in tax benefits. And you don’t have to spend a thing.
Give Stocks, Not Cash
This strategy isn’t for everyone… but if you’ve had a big year, this is a way to reduce your tax burden twice over.
When you give stocks, you get to write off the entire value of your holding (not just profits). And on top of that, you won’t owe any taxes on gains.
Of course, you need to be in the right financial position for this to work… But if you are, this is a great way to get your giving in — with a one-two tax-relief punch.
Refuse That RMD
If you’re older than 70½ — or you’re in one of a few other situations — you might have to take a required minimum distribution (RMD) from your IRA or 401(k).
That’s the minimum amount you have to take out of your account. Basically, you can’t keep using it to save and instead have to start spending.
However, sometimes it’d be better not to take that RMD — if the added cash would bump you up into a higher tax bracket, for instance.
You can completely erase your RMD from your income if you use it as a qualified charitable distribution (QCD). Essentially, you eliminate yourself as a middleman between your cash and your giving — and save yourself money and hassle by doing so.
Save Now, Decide Later
There are a lot of charities out there. And sadly, many of them are scams.
Some use almost all the money they take in to pay lavish salaries and throw huge parties for insiders (private jet travel included). Some are run so poorly only a small fraction of the cash they take in goes to purported recipients. Some simply claim to be one thing but are actually another…
Giving to any individual charity can be a complex choice — one that requires doing a lot of homework. But with our shortened holiday season this year, who has time for all that?
This year, consider setting up a donor-advised fund (DAF). This is basically a fund you can create now and use to park the money you plan to donate.
You get the tax benefits immediately. But you don’t have to decide what charity gets your money immediately. You can take as much time as you like to do that — making a DAF a useful tool for a busy time of year like this one.
A Charitable Gift Idea
I hope many of you give this year. It delivers a warm, wholesome feeling you just can’t get any other way. Even gifts to friends and relatives — rewarding as they can be — have a different character.
And of course, charitable giving is the best way you can directly choose how much you want to pay in taxes this year.
You shouldn’t give solely for the tax benefits — in most cases, you’d still have more cash just keeping the money and paying higher taxes.
But it’s one of the only ways you can do something good for a cause you believe in while getting yourself a nice financial bonus in the process.
Speaking of gifts — giving a donation in someone’s name is a great way to cover a present for the person who already has everything they need.
So get out there and give! And by giving, save at the same time.
Editor-in-chief, Unconventional Wealth
P.S. Where do you like to give — during this time of year or any other? What causes float your boat? Have you seen any big tax advantages in years past thanks to your charitable giving? Let us know at email@example.com — we’ll take a look at your favorite charities and best tax strategies in an upcoming issue.
Ryan Cole is the editor-in-chief of Unconventional Wealth. He’s been covering the alternative investment space for nearly a decade and writing about finance and investment for almost 20 years.
Ryan has walked the walk for years, living a very unconventional life. He’s led snowmobile tours through the mountains of Colorado, settled in Japan for five...