Creative charitable giving can provide tax advantages while making a difference in your community
by Blake Anderson, Certified Financial Plannerâ„¢ with WealthGuard Advisors; and Hands4Hope - Youth Making A Difference Board of Director
With Tax Day fresh in our memory, perhaps Arthur Godfrey, the 1950s radio personality, expresses the general sentiment best when he said, "I'm proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money." Luckily, you don’t need to own a private jet to pay less in taxes. In fact, I would argue the IRS wants you to pay less in taxes. Why else would they make so many deductions, exclusions, and loopholes? Jokes aside, it is usually possible to decrease your tax bill by giving to qualified charitable organizations like Hands4Hope - Youth Making A Difference. Beyond just keeping receipts from organizations you support, here are some next level strategies you may be able to use to more effectively decrease your tax bill with charitable giving.
Charitable Remainder Trust
One downside of coming into money is the increased tax burden of being pushed into a higher tax bracket with that income. Say you sold a business, sold the rental property you bought 20 years ago, or your work decides to offer a very generous severance package. You don’t need all that money right now to live on, but it sure feels like a waste to give 20 - 40% to the government. One solution is to create a Charitable Remainder Trust (CRT). A CRT is an irrevocable trust that generates a potential income stream for you, as the donor to the CRT, or other beneficiaries, with the remainder of the donated assets going to your favorite charity or charities. You get the ongoing benefit of the growth of the CRT assets and a tax deduction in the year you create it. A talented financial advisor may also be able to pair a CRT with a life insurance policy to replace the value of the donation in your estate.
Qualified Charitable Distributions
Ask any retiree and they will tell you all about the mixed blessing and curse that is Required Minimum Distributions. All your working life you dutifully deferred income into your workplace 401k or 403b plan but now that you are older the government makes you take too much out, increasing your tax bracket, triggering phaseouts, and threatening your eligibility for various senior assistance programs. A qualified charitable distribution (QCD) allows individuals to donate up to $105,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions. QCDs satisfy your RMD without increasing your taxable income and don’t count towards deduction limits allowing you to be even more generous towards impactful charities (like Hands4Hope - Youth Making A Difference) while decreasing your tax bill.
Donating Appreciated Assets
While most charitable gifts are done with cash, many charities (including Hands4Hope - Youth Making A Difference) are able to receive donations of appreciated securities like stocks, mutual funds, or bonds. Donating this way eliminates capital gains taxes compared to selling the assets and donating the after-tax proceeds. This can mean a 23.8% increase to both your tax deduction and your charitable contribution. Note however, deductions from donating appreciated securities are limited to 30% of your adjusted gross income.
Group Multiple Years of Donations
While the prior methods may sound great, if your charitable budget is smaller than the standard deduction ($14,600 for single filers, $29,200 for those married filing jointly in 2024) then none of them will ultimately benefit you come tax time. However, you can still make use of them by bunching multiple years’ worth of charitable contributions together in one year to surpass the itemization threshold. In the off years, you would take the standard deduction. This larger donation could be put into a dedicated account for charitable giving, called a donor-advised fund, allowing you to take the immediate tax deduction while spreading out grants to qualified charities over time. In the meantime, the charitable funds can be invested for tax-free growth.
If any of these strategies interest you or seem like a good fit for your situation, please reach out to a financial advisor or CPA to discuss the appropriateness of using them in your particular situation. And consider Hands4Hope - Youth Making A Difference as the local, impactful, qualified charitable organization of choice when it comes to "evading" taxes next year.
The tax information provided is general and educational in nature, and should not be construed as legal or tax advice. Hands4Hope - Youth Making A Difference does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. As a result, Hands4Hope - Youth Making A Difference cannot guarantee that such information is accurate, complete or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pretax and/or after-tax results. Hands4Hope - Youth Making A Difference makes no warranties with regard to such information or results obtained by its use. Hands4Hope - Youth Making A Difference disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Hands4Hope - Youth Making A Difference is a 501(c)3 charitable organization, Tax ID Number 26-2548690