The Pax Financial Blog

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How Charitable Contributions Can Help Mitigate Your Tax Bite

Financial Planning, financial advisor San Antonio, Biblically Responsible Investing Sep 26th, 2022 by: Darryl Lyons

The tax code is complicated, confusing, and ever-changing, which is why it pays to get help from the pros who can navigate you through the ins and outs via professional tax planning in San Antonio, TX. It’s almost too easy to miss out on valuable tax breaks that could save you money if you use a do-it-yourself (DIY) method.

One such opportunity is through charitable donations, which we will share in this article:

  • Making charitable contributions can help pocket money while helping others
  • Consider cash as more than a donation
  • Maxing out deductions with combined gifts
  • Support your favorite charities now (versus the end of the year)

If done correctly, your tax bill can bring home more revenue than just the sense of relief of getting your taxes done. Use this guide to learn how to mitigate taxes starting now! ← 

 

Charitable contributions can help pocket money while helping others

As a well-established Texas retirement planning firm, our team at PAX can help your pocketbook while assisting others through charitable contributions. Those who practice giving as a form of faithful living and biblical investing also understand the value of receiving. It’s healthy to utilize well-informed and guided methods to help you achieve financial success—that’s what we provide to clients like you!

From estate planning to tax savings, charitable giving can be a powerful tool to help you with all aspects of your financial life.

Charitable contributions can reduce taxes for both individuals and estates by effectively reducing income tax liability by allowing you to deduct your donations from your gross income (before any deductions). In addition, you may also take advantage of the gift tax exemption when contributing property or cash to charity. However, make sure there are no temporary suspensions of limits, by connecting with a financial advisor in San Antonio, Texas. 

It can get confusing because there are exemptions that can begin phasing out at higher levels on a percentage basis once they exceed 50% of your individual or jointly filed adjusted gross income (AGI). Obviously, any further charitable gifts could trigger capital gains taxes on securities held for less than one year as well as ordinary income rates on appreciated assets held longer than one year.

 

Max out your deduction with a combined gift

While the deductibility of charitable contributions is not new, many taxpayers may overlook an important provision that allows you to claim a larger deduction. If you gift $250 or more to each organization on your tax return, the total amount that can be deducted is increased by 50%. For example, if you normally claimed a $200 deduction for your donations but made multiple gifts totaling $500 at one time and in one year, then the total amount of your donation deduction would increase.

Taxpayers with itemized deductions are subject to phase-out thresholds (limits on how much they can deduct) for their charitable contributions. So again, consider your adjusted gross income (AGI) when calculating these limits.

 

Consider donating more than just cash

If you want to make a difference in the world, consider donating more than just cash. You can consider donating non-cash assets like stock and mutual fund shares. These donations can be tax-deductible, and they also provide you with an income stream that helps you meet your financial goals.

Non-cash donations have several advantages over cash donations:

  1. They provide a tax deduction for the donor but do not require the donor to itemize on his or her tax return.
  2. They are straightforward to transfer to charity; you don't need an appraisal or other documentation.
  3. They can help diversify your portfolio with long-term growth potential while at the same time supporting a charity you believe in.

Consider a donor-advised fund for charitable giving

a corkboard with the message by helping others we help ourselves pinned to itA donor-advised fund is a type of charitable fund that can help you make tax-free donations to charities in Texas or other locations. These are also referred to as a donor-directed giving fund or simply "donor advised." This type of collective giving is managed by the nonprofit organization rather than an individual or family.

If you contribute to a donor-advised fund and receive an immediate tax deduction for your contribution, the money will be invested until you decide how to donate it. The advantage here is that when you do donate the funds, they won't be taxed at all because they were already deducted.

 

Support your favorite charities now to avoid end-of-year scrambling

Donating to a charity early in the calendar year allows you to take advantage of an IRS tax deduction for this year. If you wait until the end of the year, you'll have to wait until next year for your donation to count.

Remember that not all contributions will be considered tax-deductible—you need to ensure that your particular organization qualifies as a 501(c)(3) non-profit organization before making any donations. You can check on this by going through the Internal Revenue Service's tool.

 

About 90% of Americans opt for a standard deduction

Did you know that in the United States, about 90% of Americans opt for the standard deduction? This is money that you don't need to itemize to get tax breaks. That's because as long as you meet certain criteria determined by the government, you'll qualify for this deduction without having to go through extra paperwork or provide proof of what charities/other donations you made during the year.

The standard deduction works differently than itemized deductions, so discuss charitable giving practices with PAX to ensure you’re not missing out on tax savings opportunities. Even if you use the standard deductions, there may still be an opportunity for deductibility based on factors such as age limit or income thresholds before reaching maximums set by law.

As an example, if you're over 70½, you can give up to $100,000 per year without paying taxes. You can also make tax-free gifts of up to $15,000 each year to your grandchildren and up to $15,000 each year to your great-grandchild(ren). 

 

Donating appreciated assets may result in two tax breaks

Discuss deducting the value of your donation with a financial advisor in San Antonio to help you avoid paying capital gains taxes on the appreciation since you sold the asset first. The IRS lets you choose which method works best for your situation.

If you donate stock or mutual funds that have increased in value since purchase, you can claim a charitable deduction for their full market value at the time of donation. In this case, your deduction equals what was paid for them minus any resulting capital gains from selling them (which won't be taxed). 

Your other option is to sell these appreciated assets first and then donate cash equal to their net proceeds. If this sounds appealing to you because it allows more diversification with investments than simply donating cash alone would allow—and if it makes sense given other factors such as liquidity needs or income level—consider this strategy before deciding whether it's better suited as part of your overall financial plan.

 

Connect with PAX for a genuine support system for tax planning in San Antonio, TX and much more!

If you have the thought that you may want to make charitable contributions this year, don’t wait until the last minute to get started. This will allow you to claim them as a deduction on this year’s tax return, which could help lower your next tax bill for the year. If you’re not sure where to start when it comes to giving back, we suggest starting with a simple conversation with PAX for guidance. 

We look forward to helping you determine how much you should donate annually to charitable organizations in San Antonio Texas and beyond if you earn more than $100K annually, but don't want your generosity impeded by taxes. Schedule your appt. today!

Discuss your financial situations in confidence with our team of Texas retirement planning professionals.

 

*Biblically Responsible Investing (“BRI”), Values Based Investing (“VBI”) involves, among other things, screening for companies that fit within the goal of investing in companies aligned with your values, whether they are religious or secular. Such screens may serve to reduce the pool of companies considered for investment. Investing involves risk. BRI and VBI investing do not guarantee a favorable investment outcome.

 

This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.

 

Darryl Lyons

Darryl Lyons

CEO and co-founder of the PAX Financial Group, Darryl Lyons has been a licensed professional in the financial services industry since 1999. A lifelong Texan, Darryl began his career in the financial sector just one day removed from earning his bachelor’s degree in corporate financial management and accounting at St. Mary’s University. Throughout his career, he has won awards for recruiting and development from Fortune 100 companies. In January 2007, he chose to begin and develop his independent practice. He joined Andres Gutierrez and Joseph Schuetze to form the PAX Financial Group. Darryl also served as the Chairman for Brooks Development Authority. Shortly after his service, Mayor Julian Castro, named a park “The Darryl W Lyons Park” in honor of his service. He was named to the 2010 San Antonio Business Journal’s “40 Under 40 Rising Stars,” which honors people making a difference in business and in the community.

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