Put That Checkbook Away! 4 Smart Charitable Giving Strategies
"That's nice you gave to charity, but it doesn't help on your taxes."
-the IRS when you take the standard deduction.
With the standard deduction at nearly $14,000 per person, it makes sense why nearly 70% of people don't itemize expenses, like charitable donations, on their taxes. However, this means that most people lose an important tax benefit when they donate. Fortunately, there are four lesser-known strategies you can use to maximize your charitable impact.
Gifting Cash, Check, or Stock?
Most people don't realize that charities can often accept appreciated stock or real estate.
Giving assets has distinct advantages, including:
Avoiding capital gains tax on the appreciation.
Deducting the full Fair Market Value of the asset (up to 30% of AGI).
Reducing concentrated portfolio positions.
When giving stock, you may want to consider giving multiple years' worth of donations at once to take a larger deduction. Often, the charity will sell the stock after they receive it and reinvest the money in their endowment portfolio. This allows it to grow over time and have a greater long-term impact.
QCD your RMD
If you're 73 or older, odds are you're taking an annual Required Minimum Distribution (RMD) from your retirement accounts, which adds to your taxable income annually. This presents an opportunity for a shadow deduction. You can use what's called a Qualified Charitable Distribution (QCD) to direct some of that required distribution directly from your IRA or 401(k) to a charity. There are three advantages to doing this:
You'll avoid the income tax from the distribution.
The charity receives the money.
Preserve your standard deduction without needing to itemize.
Start Your Own Donor Advised Fund
How would you like to take a big tax deduction for a gift this year but control charitable grants at your discretion over your lifetime? Donor Advised Funds (DAFs) are popular tools for just such an occasion. If you've received windfall income (e.g., a bonus, a lawsuit settlement, or the sale of highly appreciated real estate), you may want to consider a DAF. For example, instead of donating $10,000 annually to your favorite cause, you could make a one-time $50,000 contribution and then give $10,000 away over five years. The best part? DAFs can be invested for income or growth to maximize their grant-making ability over time.
Charitable Remainder Trusts: Income for Me and Gifts for Thee
Giving doesn't always have to mean you never see the money again. Charitable Gift Annuities and Charitable Remainder Trusts allow donors to receive a deduction upfront but also collect income annually. Rates and terms differ based on how the plan is set up. These options make a lot of sense for retirees who may ultimately want to support charities but need to continue collecting income from their gifts.
As always, this is not investment or tax advice. Your situation is unique, and you should consult a CPA when it comes to your tax situation. If you'd like to learn more about giving options, give us a call at 530-487-1777 or schedule an appointment online today at sweeneymichel.com.