December 4, 2023

Season of Giving: The Importance of Charitable Planning

Decorations are being hung and temperatures are starting to plunge (at least in our neck of the woods). That can only mean one thing… it’s time to lock in your charitable giving plans before year’s end.

Just as you’ll need to be thoughtful in purchasing meaningful gifts for those near and dear to your heart this holiday season, you should also be thinking of organizations that support causes important to you that would benefit from your donation(s).

In this article, we’ll take a deeper look at charitable planning, and how it can impact your tax bill when it’s time to file.

What Does the IRS Consider Qualified Charitable Contributions?

Both the types of donations an individual or company can make, and the types of organizations that can receive said donations are defined by the Internal Revenue Service (IRS) In order for contributions to be considered tax-deductible, the charity receiving the donation must be a qualified organization according to the IRS. These organizations include:

  • Organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes
  • Other organizations that meet specified requirements may qualify for exemption under subsections other than 501(c)(3). These include social welfare organizations, civic leagues, social clubs, labor organizations, and business leagues.

charitable planning stock donation

Tax Benefits Associated with Charitable Giving

In the U.S., individuals and companies making donations can receive an income tax deduction on their federal tax returns. As part of fundraising efforts, charitable organizations frequently offer some service or benefit in return for donations. Only the amount of the donation that exceeds the fair market value of the received benefit can be deducted. Individuals are required to keep a record of any donation of $250 or more.

It’s important to note that a gift given directly to an individual (even if done as an act of charity) does not qualify as a charitable deduction.

Cash gifts are not the only kind of tax-deductible donation. Any property donated to a nonprofit organization can be deducted at fair market value. This can include furniture, clothing, home appliances, sporting goods, and artwork.

Publicly traded securities that have been held for more than one year — like stocks, bonds, ETFs, and mutual funds — are the most commonly donated non-cash assets. Items that have appreciated in value (i.e. investments, works of art) may be subject to additional rules in order to be considered tax-deductible. By donating stock that has appreciated for more than a year, an individual is able to avoid capital gains tax.

Let’s look at a quick example to help you understand the numbers:charitable planning tableVia Fidelity

Giving Now vs. Giving Later

Charitable planning is a key part of an individual’s financial and tax planning in a given year, but there are also multiple options that can be explored for planned giving at a later date.

The simplest option is to include a gift to the charitable organization(s) of your choosing in your will. A second option is to designate a charitable organization as a beneficiary of your life insurance policy or retirement plan. Depending on the circumstances, the creation of a charitable lead trust, charitable remainder trust, charitable gift annuity, charitable life estate, donor-advised fund (DAF), or a family foundation are also options to consider.

Limits to Tax-Deductible Donations as a Percentage of Adjusted Gross Income

In the U.S., individuals are able to deduct donations that equal up to 60% of their annual adjusted gross income (AGI). AGI equals gross income minus adjustments to income (i.e. educator expenses, student loan interest, alimony payments, or contributions to a retirement account).

Non-cash contributions can be limited to 20%, 30%, or 50% of AGI. The percentage is dependent on two factors: the type of property and the organization receiving the donation. Capital gains donations (i.e. appreciated stock), are limited to 30% of AGI. Individuals must use Form 1040 or Form 1040-SR, and must itemize their deductible contributions on a Schedule A form.


With a little bit of planning and organization before the end of the year, you could be looking at lower taxes and more community impact in no time!

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This material is intended for informational purposes only. It should not be construed as legal or tax advice, and is not intended to replace the advice of a qualified attorney or tax advisor.

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