Gifting Might Be a Viable Strategy to Limit Taxes
Doing good to others can also mean doing well for yourself.
Charitable giving potentially offers a key component toward managing one’s nest egg. (Check out the IRS’s Tax Exempt Organization Search tool to make sure your charity is qualified to give you a tax deduction on your donation.)
You have the opportunity to donate toward causes in which you believe. You also can save some money from the tax man.
This is true even with the Trump tax reform.
The Tax Cuts and Jobs Act (“TCJA”) made only very minor changes to charitable giving, particularly for high-income taxpayers. While tax rates for many tax brackets were lowered, it also results in slightly less tax benefit from giving to charity. Nonetheless, the potential benefits from charitable giving are still tangible.
Here are 3 ways you can take advantage of charitable giving through gifting strategies:
Straight cash donations to the charity of your choice are the simplest to make. You can give via check, credit card, or payroll deduction. You will want to retain some proof that your donations went to charity for the IRS. If your gift is less than $250, either a canceled check, credit card receipt or written letter from the charity will suffice. If you gave more than $250, then you will need to get a written receipt from the charity for your records.
The new tax law puts a cap on tax-deductible cash donations to specific charities at 60% of your Adjusted Gross Income (“AGI”), which is an increase from 50% prior to the TCJA.
If you were to donate cash to a nonoperating private foundation, the IRS only allows you to deduct it up to a maximum of 30% of your AGI.
You can carry excess contributions forward for up to 5 years.
One of the best charitable gifts you could donate might be appreciated stock or other publicly-traded securities.
- You can deduct the current fair market value of the securities you gift to charity on your income taxes.
- Additionally, you do not have to pay capital gains tax on the price appreciation in those securities.
However, appreciated stock is subject to stricter deduction limits. Unlike cash donations, appreciated stock donations to charities are deductible only up to 30% of your AGI. If a stock donation is made to a nonoperating private foundation, the maximum donation deductible would only be up to 20% of your AGI.
If you want to give stock that is below your cost basis, don’t do it. It is best to sell the stock at a loss, give the cash proceeds to the charity, and write off the realized loss on your taxes.
RMD’s from Your IRA as Charitable Donations
If you are age 70.5 years or more, you have a third option for donating to charity. You can make direct contributions to charity from your IRA up to $100,000 each tax year. While you cannot claim a deduction from your taxes, you can benefit in another way. Any such donations you make from an IRA qualify toward satisfying your Required Minimum Distribution (“RMD”) mandated by the IRS. Additionally, you would not need to pay any tax on such distributions.
These ways of charitable donation might apply for people who already know to which charities they wish to donate and are ready to do it right away.
But what if your situation is different? Read how trusts and other strategies might give you more flexibility if your situation is unusual.
Come schedule a free listening session to figure out if we can help you to live a meaningful life while saving on taxes.