26 Apr 3 Tips for Charitable Giving
You’ve been generous this year. You gave money to your favorite charities when they needed it most. Unfortunately, not all contributions are tax deductible. According to new tax laws, charitable contributions have to make up a large portion of your income to be deducted, but there are ways around this! Keep reading for our tips.
1. Appreciated Securities
Appreciated securities are securities that are worth more today than when you acquired them. The difference between the security’s worth now vs when it was purchased is considered a capital gain.
So how do appreciated securities tie into charitable giving? Well, let’s say that you, someone who wants to give money to your tax-exempt charity of choice, own 1,000 shares of a stock that you bought at $10 a share, but it is currently worth $50 a share. You would have to pay $6,000 in capital gains taxes on your $40,000 profit before you could donate your earnings in cash to your charity of choice.
However, if you were to, instead of cashing out those shares to donate, transfer the shares themselves to the charity, you would pay no capital gains tax and give the full $50,000.
2. Qualified Charitable Distributions
A required minimum distribution (RMD) is the amount of money that must be withdrawn annually from an employer-sponsored retirement plan, like a traditional or SEP IRA. If you have required minimum distributions from your retirement accounts, you take the money out and pay taxes on it, plain and simple. So, if you take some of that money and give it to your charity of choice, you’re essentially paying taxes on it.
However, there’s a tax-free way! If you have some of that distribution go directly to the charity, rather than coming to you first, as long as it doesn’t exceed your RMD total, you won’t have to pay taxes on the donation!
3. Donor-Advised Funds
Let’s say there’s an organization you truly care about and want to give to for the next several years, however, your planned amount for each year doesn’t meet the requirement for a tax deduction. But, if you instead gave what you had planned to give over the span of, say, 4 years all at once, then you could get a tax break. That’s where a donor-advised fund can help. A donor-advised fund is like an investment account, but specifically designed for supporting charitable organizations you care about. You make a charitable donation by making a permanent gift into the fund. Then, you can direct the fund to make charitable grants to qualified organizations. You are granted the same tax savings that year as you would for a big single-year donation, but you’re then able to split that big donation into smaller ones and spread them out over multiple years to your organization or organizations of choice.
If you’d like more information on these tips or have questions, please don’t hesitate to contact us.
Any opinions are those of the author and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. The examples included are hypothetical for illustration purpose only. Actual results may vary.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor-Advised Funds, please contact us.