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Tax Wise Charitable Giving

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There are many ways of donating to charities and getting a tax deduction. Here is a short list of some of them.

  1. $300 charitable deduction for all filers, except those that are married filing separate, who claim the standard deduction. This is entered on page 1 of the return to arrive at adjusted gross income.
  2. Donate appreciated stocks. Transfer shares from your brokerage account to your charity’s brokerage account. Your broker can usually do this at no charge. You will get a full tax deduction for the value of the shares donated and you will not have to recognize or pay tax on your gains. Result is a full tax deduction and no tax on the gains. The shares must have been owned for more than one year.
  3. Donate a portion of your IRA required minimum distribution (RMD). This applies to people over age 70 ½ [even though RMDs do not need to start until age 72] that have IRA accounts or are required to take minimum distributions from their IRA. By doing this you will not have to pay tax on the distribution (you will not get a tax deduction either). This is best for taxpayers that will claim the standard deduction. This way you save tax on contributions that you might not have been able to deduct when you file your return. The maximum donations this way per year is $100,000. By the way, some brokers will give you a checkbook so you could make the contributions directly to your charity in any amount and at any time you want. This also reduces your adjusted gross income which could help you in other areas including possible reduced Medicare premiums, as do the previous two methods.
  4. Open a Donor Advised Fund (DAV). If you take the standard deduction and make charitable contributions, the chances are that you are not getting a deduction for any amounts over $300 per year. One way to deal with this is to estimate an amount equivalent to what you might be donating over the next few years or more, and then donate that amount this year to a DAV you establish, and then disburse the amounts you would normally donate from the DAV. Here is a link to a blog on how to set up the DAV. https://www.withum.com/resources/pn-donor-advised-funds/ . You can also donate appreciated securities to the DAV so you do not even need to use your cash. This way, you will front load your charitable deductions and perhaps qualify for an itemized deduction this year and thereafter continue with the standard deduction.
  5. Non cash contributions. If you decide to front load your charitable deductions, try to unload as much non cash contributions as you can to also get your last shot at these deductions. Be aware that qualified appraisals on a timely basis will be needed if you donate property with a value over $5,000.
  6. Leave a bequest from your IRA. One method of this is to open a new IRA rollover account from an existing IRA account. Transfer a fixed amount, e.g. $10,000, $25,000 or $100,000, or any other amount you would want paid to your charity, group of charities or your DAV upon your death and name them as the IRA beneficiaries. During your lifetime you have complete control over this account; nothing would change for you. Upon your death the funds in that account would be paid to the charities completely tax free for your heirs or beneficiaries.
  7. Create a Charitable Lead or Remainder Trust or a Charitable Gift Annuity. These are effective methods of providing for contributions to your favorite charities and obtain current tax deductions and provide a steady stream of income to either the charity or to yourself. If you are considering creating a legacy or making large contributions, consult with your tax advisor about how you and your charity can benefit from utilizing these tax benefits.

Some caveats for all charitable contributions. Check with your tax advisor before you do anything because of taxes; there are adjusted gross income and maximum charitable contribution limitations depending on the recipient charity and type of donation; and you must have proper documentation for the contribution.

This is not a complete listing and before acting on anything suggested here, you should meet with your tax advisor to determine the applicability to your situation.

If you have any tax, business, financial, leadership or management issues you want to discuss please do not hesitate to contact me at emendlowitz@withum.com.

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