Give More In 2023: #5 Reasons to consider charitable giving as part of your year-end tax planning

This blog post was refreshed in November 2023.

As we approach the final stretch of the year, it's an opportune moment to revisit the goals we set at the year's outset. Many individuals aim to be more charitable, whether through the gift of time, talents, or financial resources. In this discussion, we'll explore five avenues for giving that also align with strategic tax planning.

#1 Consolidate Donations Every Two Years:

A savvy approach involves stacking or combining your charitable contributions over alternate years. For instance, at the close of 2023, consider making contributions for both the current and upcoming year (2023 & 2024), repeating the process in 2025. This method, when coupled with other common itemized deductions like home mortgage interest, medical expenses, and property tax, allows for optimal tax optimization for those who itemize deductions on Schedule A.

#2 Implement Capital Gain Tax Strategies:

Explore the option of contributing long-term appreciated assets, such as stocks, mutual funds, or ETFs. Beyond the immediate benefit of deducting the fair market value, you can avoid capital gains tax, resulting in additional federal tax savings (up to 23.8%), along with potential state tax benefits. If you donate securities held for less than one year, you would still be subject to short-term tax treatment and could only deduct the cost basis of the donation. 

#3 Embrace a Donor-Advised Fund:

A Donor-Advised Fund provides an immediate tax advantage while permitting control over the timing and distribution of funds. Whether disbursing assets immediately to an approved charity or allowing funds to grow tax-free for future giving, this strategy is particularly valuable for individuals who come into unexpected windfalls.

#4 Get your Estate in order:

Take stock of your estate, considering that the current federal estate and gift tax exemption is $12.92M per individual in 2023. In addition to the exemption, there's an unlimited charitable estate deduction for gifts to qualified charities.

#5 Document and Claim Your Deductions:

Maintain meticulous records of your charitable giving, ensuring donations are directed to a 501(c)(3) public charity to qualify for an itemized deduction. The IRS provides a search tool for qualified organizations. Keep records such as bank statements, payroll deduction details, and written statements from the recipient charity.

For non-cash contributions exceeding $500, filing IRS Form 8283 with your annual US tax return is necessary. Donations surpassing $5,000 require independent substantiation, such as an appraisal, as mandated by the IRS.

Cross-Border Considerations for US Expats

Remember, just because you receive a US tax deduction does not mean your current country of residence will accept the tax deduction. If you live outside the US, coordinate with your local tax team to understand the impacts of your charitable giving. If you live in a high-tax country (for example, Germany or Portugal), you may be better off optimizing your local tax return. As with any tax and financial planning strategies, it's imperative to consult with your tax and financial planner. Your unique circumstances demand tailored planning strategies. If you have further inquiries, we are here to help. Please schedule a time to speak with our team using our calendar link here. We specialize in assisting US citizens (and their families) to optimize their tax and financial situation, enabling them to lead a purpose-driven life abroad.