Whether you’ve been giving to charity for years or you’re just beginning to consider it, creating a giving plan that matches your values while taking advantage of some unique tax strategies will ensure that your resources make the biggest impact for you and the organizations you care about.
Where to Give
You likely have causes and organizations where you already give your time and money, but if you are not sure where to give or want more information on an organization before you do, GuideStar may be a helpful resource. It is important to know exactly how organizations will use your resources toward their goals. Familiarize yourself with the mission and values of the organization and don’t be afraid to ask questions to understand how the charity operates.
What to Give
The tax law changes that went into effect in 2018 have had an impact on charitable giving strategies, making it more important than ever to understand how giving fits into your overall financial picture. Using the most tax-efficient approach will not only maximize the resources the charity receives, but also will optimize your own tax situation as well.
Giving cash is a simple and effective way to support charitable organizations, especially if you’ve established a regular automatic donation via your checking account or credit card. If you itemize deductions on your tax return, you can deduct up to 60% of your adjusted gross income in cash gifts to a qualified charitable organization, which is an increase from prior years. Charities receiving cash can put those dollars to work quickly and easily.
Donating Appreciated Assets
Giving appreciated stock or mutual fund shares to a qualified charitable organization can add a little complexity to your giving, but it may be worth the effort for the unique tax savings. By giving assets that have grown (appreciated) considerably more than the price you paid for them (cost basis), you can deduct the full amount of the asset up to 30% of your adjusted gross income (if you itemize deductions), and you eliminate the capital gains tax you would pay if you sold the asset first. The charity receives the full amount of the gift while you get a double tax savings in the year you gifted the asset.
Other Non-Cash Items
Not all charities want or have the ability to receive non-cash items, especially if they must be sold to be useful for the charitable organization. But for those that can receive non-cash goods, donating items in good condition or better is a great way to give. If you’re donating items valued at more than $5,000, you’ll need a qualified appraisal of those items for your tax return and proper documentation of the gift if you’re planning to itemize your deductions.
Your time is just as valuable as your money. In years where you will itemize your tax deductions, don’t forget you can deduct 14 cents per mile driven in service of charitable organizations.
For contributions of cash, check or other monetary gift (regardless of the amount), you must maintain a record of the contribution. For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the written acknowledgment requirement for all contributions of $250 or more.
How to Give
Other than donating non-cash items or writing a check to a charity, there are a couple of ways to give assets that may make sense for you.
Using a Donor Advised Fund
You can make an irrevocable transfer of cash or appreciated assets to a donor advised fund account, taking the full deduction of those gifts in the year you made the transfer as long as you itemize deductions. But, you don’t have to send all of that money to charity in that same year. You can decide when and where to send the funds based on your charitable giving wishes. These gifts need to be made to a qualified charitable organization.
Qualified Charitable Distributions
If you are 70 ½ or older, you’re likely familiar with taking required minimum distributions from your retirement accounts every year. What you may not know is that you can give up to $100,000 of your required minimum distribution directly to a qualified charity and avoid the income tax on that full amount. This strategy has become especially valuable considering the tax law changes that went into effect in 2018.
When to Give
Charitable gifts are deductible the year in which you complete them and only if you have sufficient deductions to itemize. The Tax Cuts and Jobs Act of 2017 (TCJA) expanded the standard deduction and eliminated or capped popular deductions so that many taxpayers who have itemized in the past will no longer surpass the standard deduction amount, eliminating the tax benefit of their charitable gifts (but certainly not the benefit of the gift to charity).
One planning strategy given the tax law changes is “bunching” your charitable giving into targeted years so that you clear the standard deduction amount and are able to itemize in that year, while taking the standard deduction in other years when deductions are low. Donor advised funds may be particularly beneficial since they allow you to transfer multiple years’ worth of giving in one year to receive the larger deduction, but still continue to support qualified charitable organizations in the same way you are used to year after year.
Giving all or a portion of your required minimum distribution as a qualified charitable distribution is another way to get the most tax benefit in years where you will not surpass the standard deduction amount (or even in years where you will). Whatever you give from your required minimum distribution is not taxable to you as income, making it a strategy you’ll want to evaluate every year you plan to give.
Creating a Legacy of Giving
Charitable giving as a piece of your overall financial picture requires careful planning and implementation. A well-executed charitable plan means that every dollar has been thoughtfully given, allowing you the freedom to support the causes you care about and to share your passions with the next generation.
JNBA is not an accountant nor an attorney and no portion of the above should be construed as accounting or legal advice. All accounting and legal issues should be addressed with an accounting or legal professional of your choosing.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, Inc.
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