Strategies to help your favorite charity and your bottom line
The end of the year is the time when people are looking to show gratitude by donating to their favorite charities or special causes that are important to them.
But like any financial decision, you should take a moment to see if there are any tax benefits or strategies to consider that can maximize your giving efforts.
The first strategy to consider is a Donor Advised Fund. These have two main tax advantages. First, you become eligible for an income tax deduction of the full fair market value of the asset, up to 30% of your adjusted gross income (AGI) for gifted securities, and 60% of your AGI for cash. It also eliminates capital gains taxes on long-term appreciated assets if they’ve been held for longer than a year.
The second strategy that can help benefit a charity – as well as your own finances – is a Qualified Charitable Distribution or QCD. QCDs can be a great option for those 70 ½ or older and allows you to contribute money directly from your IRA to your preferred charity. You’re allowed to give up to $100,000/year.
The advantage is that this reduces your AGI, which affects things like Medicare, Social Security, and various other tax credits and deductions. It may even help you reduce your income taxes. It can also help you offset any additional income you have if you’re over age 72.
Another charitable deduction that’s available is the Ohio Scholarship tax credit. It’s a $750/person non-refundable credit you can get by making a gift to a qualified Scholarship Granting Organization. Keep in mind that if you’re married filing jointly, you’ll need to make two separate gifts.
That’s for people who don’t itemize, but there are more strategies for those who do itemize. If you’re gifting appreciated securities, then the limit is 30% of your AGI. That increases to 60% if you’re gifting cash.
That makes some other effective strategies possible. For example, you could convert an IRA to a ROTH, and then offset the tax effect through a contribution to charity.
If you’re not yet aged 70 ½ and can’t use the QCD, you can take out IRA money, gift that to charity, and offset your income with the tax deduction. If those don’t make sense for you, you can also simply gift appreciated securities.
In fact, you get to deduct the fair market value for your appreciated securities as a donation up to 30% of your AGI. You pay no capital gains, and you can potentially save on net investment taxes as well.
You can also consider funding charitable remainder trusts, which can help provide a steady stream of income for your heirs. They can allow your estate to claim a tax deduction, all while funding your charitable legacy.
These are all great strategies that can be beneficial to you, your family, and your favorite charity. But many of these require planning before the end of the year. The time to start is now. If you need help with wealth and tax planning, give us a call today. We’re here to help!
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