Article provided by WealthCounsel;
Content edited and modified by Bennie A. Wall, Esq.
When considering a donation to a public charity, cash isn’t your only option. Depending on your financial circumstances, giving goals, and the charity’s needs, certain assets or properties may offer greater advantages.
Cash Contributions
Writing a check is the quickest way to support your favorite charity, but it might not always maximize your impact. Moreover, you must consider that there are limitations on the amount that you can deduct from your income taxes in any given year.
Appreciated Property
Donating appreciated assets like publicly traded stocks or real estate can offer significant tax advantages. By giving appreciated property directly to a charity, you avoid paying capital gains tax on the accrued appreciation. This means the charity receives more value from your gift, and you receive a tax deduction. If you’ve owned the asset for over a year, you can deduct up to its full fair market value; if less than a year, your deduction is limited to the cost basis. In each instance the total deduction is subject to IRS imposed limits.
Retirement Accounts
If you’re already required to take minimum distributions (or you are 70 1/2 or older and want to give now to reduce RMDs for the future), a qualified charitable distribution (QCD) from your IRA may be a good option for you. You can donate up to $105,000 in 2024 directly from your IRA to charity without it being counted as taxable income. A QCD can be made to satisfy your RMD for the year while reducing your taxable income and supporting your chosen charity. While a QCD doesn’t qualify for an income tax deduction, it does decrease your taxable income which in most cases will lead to a more favorable outcome.
Alternatively, if you do not want to provide for a charity during your lifetime, but you do upon your death, then naming a charity as a beneficiary of your retirement account ensures the charity receives the funds tax-free after your passing. This strategy minimizes both income and estate taxes on the account, benefiting your estate and the charity.
Charitable Trusts and Donor Advised Funds
For more sophisticated charitable giving strategies, consider:
- Charitable Remainder Trust (CRT): A CRT allows you or a beneficiary to receive income from the trust during your/their lifetime or for a specified term, with the remainder passing to the charity. This trust can provide you or a beneficiary with regular income while supporting your chosen charitable cause.
- Charitable Lead Trust (CLT): A CLT allows you to donate assets to the trust, which then makes annual payments to a charity of your choice for a specified period. At the end of the term, the remaining assets pass to your beneficiaries. This strategy can reduce estate and gift taxes while supporting charitable causes during your lifetime.
- Donor Advised Fund (DAF): A DAF allows you to make a charitable contribution, receive an immediate tax deduction, and recommend grants to charities over time. It provides flexibility and control over the timing of charitable distributions while potentially reducing your taxable income in the year of contribution.
Each of these strategies offers unique advantages in charitable giving, including income tax deductions for contributions and potential estate tax benefits. They are particularly useful for individuals looking to support charitable causes while maintaining control over the donation process and optimizing tax outcomes.
Deduction Limits – In General
Typically, cash donations to charities are deductible up to 60% of your adjusted gross income (AGI), donations of appreciated assets are deductible up to 30% of your AGI, and there is an overall limit of 50% of your AGI for all charitable deductions. In most cases, any reminder above these limits can be carried forward for up to five years. Given the complexities in determining how much, if any, of a charitable contribution will be deductible in any given year, it is imperative that you consult with your tax professional as you develop your overall gifting plan.
We’re Here to Guide You
Giving to charity not only supports causes you care about but can also offer significant tax advantages. For those looking to implement gifting strategies in their estate plan, we’re here to help you and your financial team develop a strategy that benefits everyone involved. Contact us today to discuss your charitable goals and start creating a lasting legacy.
