It's the season of giving, which can feel good and help you down the road when you fill out your tax forms. Now is the time to think about your donation plan and make your contributions count.
If you plan to donate either your time or money to a reputable charity, there are a lot of benefits. The IRS allows you to deduct up to 60% of your taxable income with charitable contributions. To make the most of the existing tax benefits, you'll need to plan ahead and stay organized.
Sabino Vargas is a senior financial adviser for Vanguard. He says the worst mistake you can make when making charitable contributions this time of year is not being strategic.
"This may sound cliche, but remember to make a list, check it twice, and plan ahead."
That means planning and fully exploring the potential tax benefits. Vargas says it's critical to take inventory of your accounts. You can then consider whether donating stocks instead of cash or a check is more beneficial. "You may be able to not have a capital gains tax," Vargas said.
Next, be intentional about the timing of your donations. Vargas says you can save on taxes by bunching your donations into one tax year. "The idea being that you may be able to have enough there to exceed the standard deduction."
Depending on your age, you may be eligible to take advantage of Qualified Charitable Distributions. QCDs are an option for Americans who are 70 or older. They allow you to make a big donation to your favorite charity and get a sizable tax break in return.
Planning to maximize your donations can be incredibly confusing. If you're feeling overwhelmed, remember that's it's okay to call in backup. "We're all human, we may need additional help," Vargas said. "It's okay to consult with a financial adviser."
The most important thing you can do is keep proof of your donations and itemize your deductions.