When you have big life changes like births, marriages, divorces, and moving to another state,…
What you donate—cash, stocks or other investment assets—and how you make your donations—may have an impact on how much of a tax benefit you receive.
The Los Altos Town Crier’s recent article, “End-of-year checklist spotlights tax-smart charitable giving,” provides some strategies to ponder. However, you should talk to your estate planning attorney to determine how these strategies apply to you.
Appreciated assets. With a strong stock market, some of today’s most effective donations are appreciated assets like stocks and property. The charity that gets the donation can sell the asset and get its full dollar value. At the same time, you receive a tax credit for that same amount. This gives the charity much more than if you were to first sell your stock, pay capital gains tax and then donate the remainder. In addition, this strategy may have a secondary benefit, since it can also save the frustration of spending time researching the cost basis of a stock you may have received as a gift or through company mergers and spinoffs if the stock lineage is hard to track. However, if you donate these shares, a tax credit can be claimed for the full current value and you don’t have to worry about calculating the cost basis.
Qualified charitable distributions. If you’re 70½ or older, you can distribute up to $100,000 directly to charity from your IRA, which might meet most or all of your required minimum distribution. The amount doesn’t need to be reported as income.
Donor-advised funds. Contributions to these funds give you an immediate tax deduction while letting you to give over time to nonprofit U.S. organizations. You can open a donor-advised fund with cash, securities, or property. These funds are simpler and less expensive to set up and manage than a private foundation. They’re a good way to teach children about philanthropy. Donor-advised funds are also a wise estate-planning vehicle for establishing a permanent philanthropic legacy for you and your family.
With last year’s tax reform, many donors are also now using donor-advised funds to collect additional tax deductions by “bundling” charitable gifts. This applies to the increased standard deduction, which jumped to $12,000 for individuals and $24,000 for married couples filing jointly. To do this, multiple years of charitable deductions are donated at the same time to a donor-advised fund.
Charitable gift annuities and charitable remainder trusts offer a tax deduction now, while providing income during your lifetime. Talk with your estate planning attorney about making these tools part of your overall estate and tax plan.
Reference: Los Altos Town Crier (November 7, 2018) “End-of-year checklist spotlights tax-smart charitable giving”