When you first think about making a donation to charity, it’s important to take the time to thoroughly consider what types of charitable giving may be best suited to your lifestyle and financial situation, as well as the causes you want to support. Whether you decide to make a cash donation right away or opt for a donor-advised fund, certain types of donations may bring you more tax benefits than others.
Cash gifts play the most important role in charitable giving. Cash donations are straightforward and easy to handle, particularly because you don’t have to worry about itemizing deductions or obtaining receipts. That said, when you choose to donate cash, you are limited to deducting only the amount that you actually give.
Donor-advised funds can also offer you a lot of flexibility and control over your donations since it's up to you which charities you'd like to support. When you make a donation to the donor-advised fund, your money or property will be transferred to a public charity of your choice at any time after the transfer, which will help you receive larger tax benefits.
Real estate can be donated in a number of ways: you can sell the real estate first and donate the proceedings or donate your property directly to charity. When you decide to give real estate, consider donating it to the charity that will be able to maintain the property and use it for a long period of time. It’s also critical to make sure that the property can be sold at the market value, as you are allowed to claim a charitable deduction for the fair market value of the donated property.
If you have a brokerage account with appreciated stocks or securities, you might want to consider donating some of your appreciated stock shares to charity instead of selling them. In addition to maximizing your tax deductions, donating stock will help you make a bigger donation to charity and avoid paying a capital gains tax on the appreciated amount.
If you decide to donate a life insurance policy to charity, you will have a chance to make a substantial contribution through small monthly payments and won't face any tax liabilities. For example, when you purchase a new insurance policy and donate it to a charitable organization of your choosing, you will receive a tax deduction of the cash value of the policy and any additional premiums that you'll pay.
When you donate a used car or some other vehicle to charity, you can claim a tax deduction of the fair market value of that vehicle. However, there are certain steps you need to follow in order to donate your car, including: