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Tax and Charitable Giving Strategies to Remember

charitable giving strategies

Especially in finances, who doesn’t love a win-win scenario? There are many decisions you can make that will positively impact both your life and your wallet. One such decision is charitable giving. The tax benefits of charitable giving have the ability to help lessen your tax burden going forward. You can secure tax benefits and save money for your successors by donating to charity. Consider the following charitable giving strategies and tax benefits to reduce your current and future tax burden while supporting a good cause or helping your town.

At O’Bryan Law Offices, our Kentucky bankruptcy attorneys have a wealth of experience and different strategies to get your finances back on track. We assist our clients in multiple forms of bankruptcy, and provide advice on how bankruptcy can help. To schedule an appointment with us, please call our office at 502-400-4020 or fill out our online intake form.

What Is Charitable Giving?

A donation of cash or property to a charity group to assist it in achieving its aims for which the giver receives nothing in exchange is known as charitable giving. Individuals and businesses can deduct donations from their federal tax returns in the United States.

Different Ways to Exercise Charitable Giving

When it comes to taxes, there are two advantages to philanthropy during your lifetime: tax deductions and estate reductions. You will also be able to see the positive impact of your donation.

Compile Your Donations in Higher Income Years

There are various instances when charity comes to mind, such as on Giving Tuesday or as we approach the end of the year. Depending on your circumstances, you may earn more in certain years than in others. For example, if you receive a large bonus or sell a firm. Consider aggregating a few years’ worth of gifts to produce one larger contribution and deduction during those strong years, rather than making smaller yearly donations.

Many individuals may not categorize deductions every year as a result of the Tax Cuts and Jobs Act’s greater standard deduction. You can itemize deductions during the high-income year while taking the standard deduction in the other years by combining gifts. The maximum charitable donation deduction is 60 percent of your adjusted income each year, but lesser restrictions may apply in specific instances.

Calculating your annual income and relating it to what you expect to earn in future years will help you better manage your donating strategy and optimize your tax deduction. 

Donate Assets That Have Appreciated

If you sell assets that have increased significantly in value over time, such as stocks or real estate, you will owe capital gains tax. One approach to avoid capital gains taxes is to donate these assets to a qualifying nonprofit organization. Simultaneously, you may secure an income tax deduction for the asset’s market value. The charity that receives your gift will not have to pay capital gains tax and will also benefit from the valuation of your gift.

Giving greatly valued assets also helps to reduce the amount of your overall taxed estate. Estate tax planning is critical since the tax ramifications of an estate subject to estate tax can be as high as 40%. Taking high-growth assets out of your estate might help to limit the size of your taxable estate over time.

Use a DAF

Giving through a charity vehicle, such as a donor-advised fund, is another method to enhance your deduction during a strong year while minimizing capital gains tax and maybe inheritance tax down the future. Many brokerage companies and community organizations can help you set up a DAF.

You can give money or other assets to the fund, such as valued stocks, and get a tax benefit right away in the year you donate. You may suggest fund distributions to the projects and organizations you care about over time, and the account grows tax-free. You can plan your donation to a DAF to coincide with a high-income year in order to take advantage of a significant tax deduction.

Roll Your Donations Over to Charity

After the age of 72, retirees with conventional IRA funds must draw required minimum payouts. Following the completion of their RMD requirement, some people may find themselves in a higher tax bracket.

After reaching the age of 70 1/2, those who don’t need their RMD income to finance their life can use the qualified charity deduction or a donation rollover option. QCDs allow you to donate your RMD directly to a qualifying charity up to $100,000 per year and deduct the amount given from your taxable income.

How to Use a Will or Trust for Philanthropy

Giving to charity through your will or trust is a popular method to donate and make a difference. While you won’t get double tax benefits of donating during your lifetime, a charitable legacy allows you to make sure your individual economic requirements are met before transferring assets to others.

Name a Charity as a Beneficiary of Your Retirement Plan

Naming a qualifying charity organization as the benefactor of your retirement plan is a tax-advantaged option to donate upon your death. If you name your heirs as beneficiaries of your plan, they will be liable for income tax and, depending on the amount of your taxable estate, perhaps estate tax on withdrawals.

Furthermore, the SECURE Act recently altered the regulations governing inherited IRAs, making them less appealing to heirs. Recipients can only extend payouts for up to 10 years before they must make full withdrawals and pay taxes, reducing the tax-deferred potential growth of received IRAs.

Because charitable organizations are tax-exempt, giving non-Roth retirement assets to a qualifying charity and other assets to your descendants can significantly decrease your successors’ tax payment. Even donating a part of your retirement account to charity might provide your successors with tax benefits.

What Is a Charitable Trust?

Charitable trusts allow you to make a difference both now and in the future. There are numerous solutions available based on your scenario. Charity remainder trusts and charitable lead trusts are two of the most popular options.

Charitable Remainder Trusts

A charitable remainder trust, or CRT, is an irrevocable trust that permits the trust’s grantor, or owner, to convert highly valued assets into a source of income. The grantor obtains a tax benefit when the asset is transferred, reduces capital gains taxes when the item sells, and may be able to reduce future inheritance taxes. When the grantor or the grantor’s designated non-charity successors die or the income flow’s term expires, the residual trust assets are distributed to the grantor’s qualifying nonprofit groups.

Charitable Lead Trusts

An irreversible charitable lead trust is the polar opposite of a charitable remainder trust. A CLT distributes a stream of income to a qualifying charity organization for a predetermined period of time, then passes the residual trust assets to the grantor’s successors after that term expires. The grantor gets a tax benefit for the current value of the income source contributed to charity, and he or she can remove highly valuable assets from the estate and pass them to heirs without having to worry about gift or estate taxes.

Why Should You Work With an Attorney?

Although these charitable giving strategies offer advantages, determining the ideal time to use them or determining which techniques work best in your case may be difficult. Working with competent financial, tax, and estate planning specialists can help you develop the best giving strategy to meet your charitable goals and save money on taxes now and in the future. O’Bryan Law Offices offers appointments with qualified debt counselors and credit counselors. In other words, we have the financial knowledge to advise you for your future.

Contact O’Bryan Law Offices Today

At O’Bryan Law Offices, we help many individuals with their finances each and every day. Whether they want to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, we can help. Just as bankruptcy isn’t always a bad thing, charity isn’t only beneficial to one party. You, too, can benefit from certain charitable giving strategies. To speak with an experienced and qualified attorney, call today at 502-400-4020 or fill out our online intake form today.

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