Tax Breaks from Charitable Gift-Giving
Gift-giving can establish a meaningful legacy for your estate. Federal taxes also allow various tax deductions if your donation goes to an eligible charity.
Writing a check or providing toys at a holiday drop-off center is a simple way to do your share. Although, there are various other ways to give support while also ensuring your assets and are also preserved. There are a variety of tax advantages to these methods as well.
Options for Charitable Gift-Giving
1. Gifts of appreciated assets.
Giving cash to a charity is a great way to provide support for that charity while gaining a tax deduction. However, donating appreciated assets (such as stock) is a more tax effective strategy than donating cash because you receive the full tax deduction for the fair market value of the assets without having to recognize the capital gain on the prior appreciation of those assets.
2. Charitable remainder trusts.
You can start a charitable remainder trust (“CRT”). The trust is created when you donate property to a CRT and designate a charitable beneficiary. You will receive an immediate tax deduction and the trust will pay income to you (up to a certain percentage) while the trust is in existence, similar to an annuity. Once the trust terms are complete or after your passing, the assets you provided will be given to the charity you have chosen.
3. Charitable lead trusts.
You can start a charitable lead trust (“CLT”). The trust is created when you donate property to a CLT and designate a charitable beneficiary. You will receive an immediate tax deduction. In contrast to the CRT, the CLT will make payments to the charity while the trust is in existence. Once the trust terms are complete or after your passing, the assets you provided will be given to the beneficiaries (such as children) that you have chosen.
4. Donor Advised Fund.
Donor Advised Funds (“DAF”) are useful tools if you want to make a large charitable gift but are not sure which charity to select at that particular moment. Many of our clients use DAFs to generate a tax deduction at the end of the year. DAFs are relatively inexpensive and easy to start. A very good example are the “giving funds” provided by the National Christian Foundation (https://www.nationalchristian.com/).
5. Donate from your retirement account.
Some retirement accounts allow you to give to a charity, exempt from both estate and income tax. There is a provision in the law that can allow up those aged 70 ½ or more to give to charity from their IRA, with up $100, 000 exempt from taxes. You can read more about this law on the IRS website.
6. Private donations.
You can donate to private foundations. These are organizations that are not government-funded and/or nonprofit, and an independent overseer is managing all of the funds and donations. The IRS allows these organizations up to 5% payout on the organization’s net annual assets. This is one of the most convenient ways for you to contribute, although be sure to consult first with our Montgomery County estate planning lawyers to review the advantages and disadvantages of the particular organization and your estate plan.
Have Questions? Contact Us!
Dossey & Jones PLLC has extensive experience in all aspects of estate planning. If you would like to learn more about how you can contribute this holiday season. With so many methods of charitable donations and that can benefit your estate plan as well, be sure to ask us about the options available to you.