Tax-efficient charitable giving can benefit all parties

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Q: We want to support our community by making tax-efficient donations to charities. Advices?

A: Create a multi-year plan that lists your favorite 501 (c) 3 charities. Decide when you want charities to receive the gift and how much you want to give each.

Immediate donations of valued stocks or mutual funds (held for more than a year) can be made by contacting your custodian and sending the proceeds directly from your account (after tax) to the organization’s custodian account. charitable. This strategy benefits both parties. The donor avoids paying capital gains tax while taking full advantage of the donation; during this time, the charity does not pay income tax, which allows you to devote more money to your cause. Appreciated securities held for less than a year are capped at cost and lossy assets should not be donated (sell these and claim tax losses).

Bundling donations with other deductible expenses like two years of property taxes can result in tax savings greater than the standard deduction - the reason for the multi-year plan.

The standard deduction for 2022 is $ 12,950 for singles and for married people filing jointly, it drops to $ 25,900. Bundling donations with other deductible expenses like two years of property taxes can result in tax savings greater than the standard deduction – the reason for the multi-year plan.

Donor Advised Funds (DAFs) can accept assets valued up to 30% of adjusted gross income. Created for the purpose of managing charitable giving, these popular tools provide immediate tax benefit and tax-free growth. This irrevocable transfer makes it possible to invest and grant assets over time by the donor. The DAF has fees and minimums for donations.

Private foundations are usually funded by a single individual, family or business and organized for charitable, educational, religious, scientific, or literary purposes. Private foundations are donor-controlled and most have assets of less than $ 1 million. The minimum required to start a new foundation is $ 250,000. Contributions are tax deductible (within certain limits) and private foundations are required to contribute 5% of their average net assets from the previous year in qualifying charitable donations and specific expenses. If the net average of a private foundation is $ 255,000, the required payment is $ 12,750, so you can see how these foundations can last for a while when only minimums are paid and become especially useful when an inheritance. family is the goal. Foundations can hire family members and are often passed from generation to generation.

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When it makes sense to close a private foundation, irrevocable donations can be transferred to a DAF where the donor can donate to preferred charities and direct investments. A successor can be appointed to take over on the death of a donor.

The most common strategy for using CFOs is to “charge up” charitable contributions during high income years. Distributions can be made at any time. Cash, stocks, mutual funds, real estate, private business interests, or shares of private companies are all eligible contributions. This is arguably the most tax-efficient way to give to charities and allows giving to grow, making even more money to give to charities.

At 70½, another preferred way to donate is to send Qualified Charitable Distributions (QCDs) directly from an IRA. In order for the QCD to count towards your current year’s minimum required distribution (RMD), the IRA custodian must transfer the funds directly to a qualified charity by the year-end deadline. RMDs usually appear on the first page of the 1040 tax return, so the absence of a taxable RMD can save tax on Social Security benefits and the potential increase in premium costs. health insurance.

Mary Baldwin, CFP®, is a paid financial planner with Buckingham Strategic Wealth in Indian Harbor Beach.

Are you uncomfortable giving in your lifetime? Change the beneficiary of your IRA, but NOT your Roth. Charities don’t pay tax, so leave the taxable IRA to the charity and leave the Roth to your favorite top performer.

Find favorite charities, calculate contribution amounts, determine dates, examine tax implications, and work with experienced advisors to make tax-smart donation decisions.

Mary Baldwin, CFP®, is a paid financial planner with Buckingham Strategic Wealth in Indian Harbor Beach. Contact her at 321-428-4555 or [email protected]

This analysis is for informational and educational purposes only and not for investment advice, accounting, legal or tax purposes. Seek advice from qualified professionals based on your personal situation. This analysis is based on current data and information and may become obsolete or otherwise superseded at any time without notice. Some information may be based on information from third parties and is believed to be reliable, but its accuracy and completeness cannot be guaranteed. IRN-21-3085

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