More people are looking for ways to donate, and are seeing great benefits when they do.
Charitable planning is a way to support charities and non-profits that are near and dear to you while receiving tax. You can contribute annually, or periodically over a lifetime.
Take a few minutes to learn how to develop your charitable planning strategies.
Choose a charity
You may donate to a public charity–501c (3)–or a private foundation. If you have an organization in mind already, you should find out about its tax-exempt status.
If it’s a non-profit organization, it will likely be tax-exempt. If it’s a private foundation it might be subject to charitable trust taxation.
There are a few charity types you can donate to and your deductions may differ by the type of organization. Human rights, animals, education, and the environment are just a few types of charities out there.
If you’re unsure of what charity you’d like to give to, there are a few websites available to help you find and research a reputable and deserving organization.
What You Can Donate
You can donate time and things you don’t use anymore.
You might want to consider charitable planning within your estate planning. What items that are usually subject to estate tax could receive further deductions.
When you donate appreciated stock, receive a tax incentive and avoid capital gains tax. You’d pay capital gains tax on the stock if you sold it and donated the proceeds.
You can donate shares or the entire stock holding.
Mutual fund shares
If you’ve held the mutual fund for less than a year, you would be able to deduct your original investment amount. Any appreciated value can’t be deducted.
For mutual funds held for longer than a year, you might be able to deduct the full market value from your income taxes.
Short-term mutual finds have a cap of 50% deduction on your adjusted gross income, while long-term mutual funds have a cap of 30%.
However, you can carry any amount that you couldn’t for the current year to the next year for up to five years.
If you’d like to donate your life insurance to charity, you do it in one of two ways. You can make the receiving organization the beneficiary. It will receive the insurance payout after your death.
You wouldn’t receive a tax deduction for the donation, however, since the contribution wouldn’t happen until after you die.
The second way to donate is to make the charity the policyholder when you’re alive. You could receive up to 50% of your adjusted gross income on the value of your donation and any cash donations to give the charity can be deducted to pay the policy premiums.
Making the charity the policyholder is irrevocable, so you should be sure you won’t want to change your mind later.
Donating real estate can lend benefits to all parties involved. A needy family might get a home or the charity might get a new location. You can donate land (developed and undeveloped) and structures.
When you gift real estate, you avoid capital gains tax and receive immediate tax incentives up to 50% of your adjusted gross income. You can also carry any remaining deductions for five years.
When donating artwork, there are a few things to consider.
You should consider the type of organization, the type of property the artwork is (capital gain property or ordinary income property), will the artwork be used in the manner in which it’s gifted, and has it been properly appraised.
Donor-advised funds allow you to donate to a public charity and get an immediate tax deduction. These types of funds can be used like a charitable savings account, where you open a donor-advised fund account and deposit money then recommend grants to charities.
Highly appreciated stocks, bonds, and mutual funds. The full market value of the appreciated stock or mutual fund shares is deducted but you avoid tax on the appreciated gain.
Tax-free from your IRA. When you donate to a non-profit from your IRA, the donation is untaxed.
You can establish a public charitable trust to donate. Charitable trust tax deductions may be spread over five years. The initial donation amount can’t be deducted dollar for dollar.
The federal government offers tax incentives to encourage giving to charity. Not only does it benefit the charitable organizations but it benefits the donors as well.
Make the most of your taxable income with charitable planning. You may designate an allotted amount of your taxable income to go to the charity or foundation of your choice.
This can reduce the amount of income tax you will pay during tax season.
Items you donate to non-profit organizations aren’t considered taxable and are excluded from estate tax.
You can donate as much or a little as you want to charity, so if you wanted to donate your entire estate, you’d pay no estate tax.
Through a charitable remainder trust or a charitable remainder unitrust, you can earn a residual income via charitable planning.
With charitable remainder annuity trusts, you’d receive a fixed annuity amount every year. You can’t make additional contributions to these types of trusts.
Charitable remainder unitrusts pay the donor a fixed percentage based on the balance of the trust assets which are revalued every year. You can make additional contributions to this type of trust.
At the end of the designated lifetime or term, any trust assets that are left go to a charitable remainder beneficiary.
It Feels Good to Give
Studies show that people who are generous are happier and live longer. Not to mention the satisfaction of knowing you’re doing good for someone or something else.
The studies also show that it doesn’t matter the amount you’ve given, the intention and the act produce the same result.
Get Help With Charitable Planning
Planning future donations can be tricky, especially when you’re new to charitable giving.
Visit our blog to learn more about estate planning and charitable planning.