Follow these smart money moves to give more to your favorite charities while saving on taxes
, despite the fact that the tax changes that took effect in 2018 reduced some of the opportunities to take advantage of tax breaks for charitable giving. Clearly, most donations are motivated by a lot more than tax savings. But there’s no reason not to maximize your tax benefits from being charitable and to do that, under the new law, takes some planning. Here are five key strategies.
So, for example, instead of donating $3,000 annually for each of five years, consider giving $15,000 all at once. It’s the same total gift as before, but if you coordinate it with your other eligible itemized tax deductions such as real estate taxes and medical expenses, you can benefit by itemizing in the year you make your big donations, then claiming the standard deduction in other years.
Then, you can dribble out contributions to your favorite operating charities over time. Meanwhile, the assets within the DAF can be invested and grow income tax-free inside the fund—meaning you can use a DAF to establish a charitable legacy for your family, allowing your children, as they mature, to recommend which charities to support.
Donating appreciated assets—like highly appreciated stocks—to charity is a tax-favored way to support your favorite charity. You get the benefit of a charitable deduction for the fair market value of the assets at the time of your contribution without paying capital gains tax on the appreciation. You can combine this strategy with a charitable trust for even more flexibility and control. When you contribute highly appreciated assets to an irrevocable trust, you’ll receive a charitable deduction for income tax purposes. The amount of the deduction is equal to the value of the charity's right to receive either the remainder of the money after a particular term or the right to receive the income from the trust for a set number of years.
To qualify as an eligible transfer, the funds must be directed by the IRA trustee to the charity; the transaction is sometimes referred to as a charitable rollover. If you pull the funds out yourself and write a personal check, it doesn’t qualify as a charitable rollover and is a taxable event. One additional note: You may not use a charitable rollover to make donations to DAFs, supporting organizations or private foundations.
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