Tax Strategies for Charitable Giving

On behalf of The Law Office of Wickersham and Bowers posted in Estate Planning on Tuesday September 13, 2022.

It takes much thought and planning to decide where to contribute your hard-earned money. A wise charitable giving plan takes into account your giving style, timing, and content. 

Your giving strategy and the timing of your donations can optimize their impact on your favorite charity while lowering your tax burden. The following two strategies can help reduce your tax burden. 

It’s Not Just Cash

Direct charitable giving may be more advantageous than selling non-cash assets like a mutual fund or stock shares and donating the after-tax proceeds. If you’ve had the assets for more than a year, you’ll receive two important advantages. In most cases, you’ll be able to deduct the full fair market value from your taxes — neither you nor the charity will owe any taxes on the gain. As a result, you will be able to donate up to 20% more to the charity than you would have given if you had sold the asset and donated the after-tax revenues.

You can also acquire more of the same stock after donating any that has dramatically increased in value, thereby “resetting” the cost basis to a more significant sum.

While stock awards can generate a sizable income, they can also have unanticipated tax repercussions after they are exercised or vested. As a clever strategy to lower your tax exposure, think about using vested shares from prior years or other long-term appreciated assets for charitable giving.

Consider a QCD

A qualified charitable distribution, or QCD, is another tactic that can lower your taxable income. These are contributions paid to your preferred charity straight from your IRA. The gift amount isn’t considered as a charitable deduction, but it doesn’t count as taxable income either. It essentially reduces your taxable income by the amount donated to charity, even if you weren’t otherwise itemizing deductions.

If your required minimum distribution (RMD) for the year has not yet been satisfied, QCDs can count toward it. Reducing your taxable income can also be beneficial when figuring out how much Medicare premiums will cost you. Make sure to speak with your accountant first because there are a few rigorous criteria you must follow in order to take advantage of this method.

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