Top 5 Tax Efficient Ways to Give to Charity
November 26, 2018
Giving Tuesday has become a popular time for individals to make their charitable contributions in contemplation of the Holiday season. Here are a few good ways to achieve your charitable goals for the year while also maximizing your income tax savings.
1. Highly Appreciated Securities.
Most charities are set up to receive marketable securities in addition to cash. By donating your highly appreciated securities directly to a charity, you may avoid realizing the built-in capital gain and be able to take a charitable deduction for the amount donated. Be careful to only donate securities held for longer than a year to maximize that deduction.
2. Qualified Charitable Distributions.
If you are receiving required minimum distributions from a traditional IRA, the IRS allows you to donate up to $100,000 of said distribution to a public charity. The IRAs trustee must send your donation directly from the IRA to qualify, and no goods or services are allowed to be received in exchange for the donation. Each qualified charitable distribution reduces the amount of the required minimum distribution that is taxable to you, and by lowering your AGI, you may become eligible for other deductions that would have otherwise been phased out.
3. Donor Advised Funds.
Donor Advised Funds have gained popularity this year due to tax law changes under the TCJA. The Tax Cuts and Jobs Act increased the amount of the standard deduction for individuals to $12,000, which can have the effect of limiting or eliminating the charitable deduction for those who make modest annual charitable gifts. Donor Advised Funds are designed to receive donations that are tax deductible to the donor in the year contributed, even if the funds aren’t distributed to charity until a future point in time. For example, you can “bunch” four or five years’ worth of charitable contributions to a DAF into a single year in order to exceed the new standard deduction limit. Donating highly appreciated securities, as discussed above, can further your tax savings.
4. Establish a Private or Family Foundation.
A private or family foundation is a great way to establish a long-term giving mission for families looking to make substantial gifts to charity. Like a donor advised fund, the donor can receive a tax deduction for the gift in the year donated. Foundations come with a good deal of administration, however, so they are best suited for families who wish to create a substantial charitable legacy.
5. Employer Matching Gift.
Don’t forget that most employers have a charitable gift matching program. Employer matching gifts are a great way to supplement your gifts to charities of your choice. Check your employee benefits guide or contact your HR department regarding the possible benefit and plan rules.
As with many tax-saving techniques, individual circumstances must be taken into consideration and tax projections should be run in some instances in order to fully understand the impact personally.
If you have further questions, don’t hesitate to contact your Relationship Team or email us at Top5@glenmede.com.
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