Charitable Tax Planning: the benefits for blessing others
Charitable giving can be a great way to support causes you care about while also receiving some tax benefits. These tax benefits can be substantial if planned well. However, be wary of some of the misunderstood concepts when it comes to the tax deductibility of charitable contributions. Here are some tips for charitable giving tax planning:
Itemize deductions: In general, to take advantage of the tax benefits of charitable giving, you must itemize your deductions on your tax return. This means that you must list out all of your deductible expenses, including charitable contributions, state and local taxes, and mortgage interest rather than taking the standard deduction.
Donate appreciated assets: If you have appreciated assets, such as stocks or real estate, donating them to a charity can be a tax-smart move. You can generally deduct the full fair market value of the asset at the time of donation, which can result in a larger tax deduction than if you were to sell the asset and donate the cash proceeds.
Consider a donor-advised fund: A donor-advised fund is a charitable giving vehicle that allows you to make a contribution to a fund, receive an immediate tax deduction, and then recommend grants from the fund to charities over time. This can be a good option if you want to make a large charitable contribution but aren't sure which charities to support.
Be aware of contribution limits: There are limits to the amount you can deduct for charitable contributions in any given year. The limit is generally 60% of your adjusted gross income (AGI) for cash donations to public charities, and 30% of your AGI for donations of appreciated assets.
Take advantage of qualified charitable distribution: For individuals who are at least 70 1/2 years old, a charitable contribution can be made directly from their traditional IRA. These qualified charitable distributions (QCD) must be made directly from the IRA to the charitable organization. If handled correctly, these distributions are nontaxable IRA distributions. Therefore, a QCD essentially results in a charitable contribution tax deduction even if you do not itemize your deductions.
Consider creating your own public charity or private foundation: If you are passionate about a specific charitable cause, why not start your own organization? After creating a nonprofit organization and qualifying for tax-exempt status, you can generally take a charitable contribution tax deduction for contributions you make to your own organization. There are additional tax benefits available under this strategy, but those are out of scope for this article.
Keep good records: Make sure to keep good records of your charitable contributions, including receipts or acknowledgments from the charities you donate to. This will help you substantiate your deductions if you are ever audited by the IRS.
So with these charitable giving tax strategies and tips, go out and give cheerfully to quality charitable organizations that you support! But, please consult with your Harvest Tax Planning advisor to determine the best charitable giving strategy for your individual situation.
