Presented by: Executive Wealth Management
Read Time: 3 MIN
Giving to charitable organizations is noble, demonstrating generosity, social responsibility, and a commitment to improving society. In addition to the inherent benefits of philanthropy, it can also provide tax incentives to encourage citizens to donate more to registered charities. Effectively leveraging these incentives can make charitable giving even more beneficial for the donor. Here are six ways to save tax dollars when giving to charities.
Direct Cash Donations:
The simplest form of giving to a charity is a direct cash donation. Individuals can deduct cash donations up to 60% of their adjusted gross income (AGI) if they itemize their deductions. The excess can be carried forward and deducted over the next five years if the contributions exceed this limit.
Donating Appreciated Securities:
A wise strategy for tax savings involves donating appreciated securities, such as stocks, mutual funds, or bonds, which you’ve held for over a year. In this scenario, you can deduct the total fair market value of the security, avoiding capital gains tax on the appreciated value. This strategy is particularly effective for securities that have significantly increased in value.
Donor-Advised Funds (DAFs):
A DAF is a philanthropic vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and recommend grants from the fund over time. You can fund the DAF with cash, securities, or other assets, taking the tax deduction in the donation year. This strategy allows for tax-free growth of the assets in the fund and flexibility in granting to charities over time.
Charitable Remainder Trusts (CRTs):
CRTs are a form of ‘giving while living’ that can offer substantial tax benefits. You transfer assets into the trust, paying you or your designated beneficiaries a set income for life or a specified number of years. At the end of the term, the remaining assets in the trust go to charity. This strategy provides an immediate tax deduction for the estimated present value of the future charitable gift. It helps avoid capital gains tax on appreciated assets used to fund the trust.
Qualified Charitable Distributions (QCDs):
If you’re at least 70½ years old, you can make QCDs — direct transfers of up to $100,000 per year from your IRA to qualified charities — which count towards your Required Minimum Distributions (RMDs) but don’t increase your adjusted gross income. This strategy is an effective way to lower your taxable income while supporting your favorite charities.
Estate and Gift Tax Considerations:
Planning to give through your will or estate plan can reduce your estate taxes. Bequests to charity are 100% deductible from the donor’s estate for estate tax purposes. This includes gifts through bequests and beneficiary designations in retirement plans or life insurance policies.
Understanding and utilizing these tax-efficient strategies can help maximize the impact of your charitable donations while reducing your tax liability. Working with a financial advisor or tax professional who can guide you through the complexities of tax laws and the most beneficial option for your specific circumstances is essential. Remember, philanthropy is not just about giving; it’s about making a difference strategically and financially savvy.
At Executive Wealth Management, we provide financial, tax, and legal solutions to maximize all areas of wealth management, including tax savings with charitable giving. ewmadvisors.com/contact-us
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EWM does not offer tax or legal advice. Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any specific level of qualification or skill. Investment Advisor Representatives of EWM offer Investment Advice and Financial Planning Services to customers located within the United States. EWM does not offer tax or legal advice. Executive Wealth Management, EWM Tax Solutions, and EWM Legal Services are affiliated but separate companies.
