One of the best ways to make a positive difference in the world is to donate to charities. At the same time, how you donate can significantly affect taxes, especially given the recent tax reforms.
As 2018 ends, LACF can help you make a meaningful impact with these smart giving tips.
Note: the following are suggestions; donors should consult a tax professional for their specific situation.
Donate appreciated assets such as stocks or property:
You get a tax credit for the full value of a donated asset while the charity receives a larger gift than if the stock was first sold and paid capital gains taxes before donating.
As a secondary benefit, this approach can also save time when researching the cost basis of a stock that was received as a gift or through company mergers and spinoffs when the stock lineage is difficult to trace.
Just give the shares, claim a tax credit for the full current stock value, and don’t worry about figuring out the cost basis.
Qualified Charitable Distribution (QCD):
Donors who are 70 ½ or older can distribute up to $100,000 to a charity from an IRA. This satisfies the Required Minimum Distribution requirement and does not need to be reported as income.
Open a Donor Advised Fund (DAF):
Contributions to DAFs give a tax deduction this year. You can give over time to nonprofits throughout the U.S. DAFs are funded with cash, securities, property, etc.
DAFs are more simple and less expensive to set up and manage than a private foundation. They also are a great way to teach children giving and are an ideal estate planning vehicle for establishing a permanent philanthropic legacy for families.
“Bunching” and DAFs:
With last year’s tax reform many donors are now using DAFs for additional tax deductions by “bunching” charitable gifts. This addresses the increased standard deduction, which is $12,000 for individuals and $24,000 for a married couple filing jointly.
To use this approach, donate multiple years of charitable deductions at once to a DAF. For example, if you normally give $8,000 a year to charities, give $24,000 this year to your DAF, get this year’s tax deduction for the full donated amount, and then donate $8,000 this year and each of the later two years.
Life Income Gifts:
Vehicles such as Charitable Remainder Trusts and Charitable Gift Annuities allow tax deductions now while providing income during the donor’s lifetime. They are very useful estate planning tools.