Through charitable giving, you can support causes or organizations you believe in and lock in tax benefits simultaneously. Whether you’re new to charitable giving or a veteran, there are several strategies you should keep in mind. The giving methods you choose, what you give, and when you give can help you maximize your impact and minimize your tax burden. Here are four charitable giving strategies to consider before making your gift.
Non-cash charitable contributions
Contrary to popular belief, cash is not the only way to give back. Instead of cash, you might want to consider taking advantage of donating appreciated stock or assets that you’ve held for more than a year. Through this strategy, you’ll be able to save on capital gains taxes.
Another option is to name a charity as your life insurance policy beneficiary. Note that you can change beneficiaries if you are the owner of the policy. In addition, you can donate goods that can help an organization. If you donate goods, you can ask for a tax deduction form, as long as the goods are in good or better condition.
Qualified Charitable Distributions (QCDs)
If you're 70 1/2 or older, you can use a QCD to donate directly from your IRA to the charity of your choice. While the gift amount won't qualify for a charitable deduction, it won't be considered taxable income either. This strategy allows you to deduct the amount transferred to the charity from your taxable income. In addition to reducing your taxable income, a QCD might be helpful if you won't reach the level of itemized deductions to exceed the standard deduction amount but would still like to make charitable gifts.
Donor-Advised Funds (DAFs)
You can donate cash or other assets to a charitable investment account and receive a tax deduction immediately with a DAF. Since a DAF will grow tax-free, you may choose to distribute funds over time to organizations and causes that are important to you. If you time your contributions to coincide with higher-income years, you'll enjoy a more significant tax deduction.
Bunch your donations
Bunching or concentrating your donations in one year instead of skipping one or several years is a great way to make the most out of potential tax deductions. This option may make the most sense for your situation if your total itemized deductions for a single year fall below the standard deduction. By making charitable contributions for several years at one time, the total of your itemized deductions can exceed the standard deduction and offer some tax benefits.
Consult your financial professional
Your team at Planned Financial Services can work with you to help you design a charitable giving strategy. Together we can review your financial situation and help you work towards meeting your desired goals. Contact us today to get started at 440.740.0130..
Investment advice offered through Planned Financial Services, a Registered Investment Advisor.
Information provided is general and educational in nature and should not be construed as legal or tax advice. Planned Financial Services and its licensed representatives do not provide legal or tax advice. Content provided relates to taxation at the federal level only, and availability of certain federal income tax deductions may depend on whether you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. Charitable contributions of capital gain property held for more than one year are usually deductible at fair market value. Deductions for capital gain property held for one year or less are usually limited to cost basis. Consult an attorney or tax advisor regarding your specific legal or tax situation.
All information is believed to be from reliable sources; however Planned Financial Services makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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