Win-Win Charitable Giving
The holidays are a special time to focus on giving not only to family and friends but to charities as well. Many of you will be giving to a charity this holiday season because you are supporting a cause which is meaningful to you, and you may not care if you get any financial benefit from giving. But what if you could do good for the charity and your taxes at the same time?
Charitable donations can lock in tax deductions that will save you money. Having a simple plan and willingness to use alternatives to cash donations can help you lower your tax liability. Check out these charitable giving tax strategies to create your win-win charitable plan that you can implement throughout the year!
The Tax Cuts and Jobs Act resulted in a higher standard deduction, so many taxpayers are no longer able to itemize and get a write off for charitable donations. By bunching or grouping multiple annual donations in one year, you can itemize for a higher deduction in that year and take the standard deduction in other years. You may want to time this strategy with a higher income year.
Donate appreciated assets instead of cash
If you have an asset that has appreciated over time, selling the asset could result in a capital gain which increases your tax liability. By donating the asset directly to charity, you can avoid paying capital gains taxes and you may be able to get a tax deduction for the fair market value of the asset if you itemize. The charity does not have to pay the capital gains taxes either!
Donate directly from your IRA
For those at least 70 ½ years old, you can transfer up to $100,000 directly from your IRA account to a charity and avoid paying taxes on the distribution. If your retirement assets are in a 401(k) or other similar retirement plan, you will need to transfer the money to a Rollover IRA before you can use this strategy.
Open a donor-advised fund
A donor-advised fund (DAF) is like a charitable investment account for the sole purpose of supporting the charities you care about. You can contribute cash and/or appreciated assets then direct payments to the charities of your choice whenever you want.
- The DAF is a great tool to use when bunching donations because you can keep the money in the DAF and direct it to the charity over multiple years.
- Not all charities will accept appreciated assets, but the good news is a DAF will. So use the DAF to facilitate your strategy to donate appreciated assets.
I love sharing my time, talents and treasure with Mainsprings, Haiti Healthcare Partners, Savvy Ladies, and a few other charities. Please reach out and let me know what charities and causes you like to support! We here at MainStreet Financial Planning would be happy to help you create your win-win charitable plan.