December 6, 2024
Tax Strategies for Charitable Contributions
Charitable contributions offer an impactful way to support causes important to you while optimizing the tax benefits of your donations. A well-structured charitable giving strategy can not only align with your financial goals, lifestyle, age, risk tolerance, and values, but also enhance your tax planning by reducing your overall tax burden. The key is to balance your generosity with your income needs, ensuring that you make the most of available tax advantages. Below are several strategic approaches for charitable contributions that can have a significant positive impact on your financial situation:
1. Qualified Charitable Distributions (QCDs)
For individuals 70½ or older, a QCD allows you to transfer up to $105,000 (in 2024) directly from your IRA to a qualified charity without having to pay income tax on the distribution. This can be a particularly attractive option because it counts towards your Required Minimum Distribution (RMD) but doesn’t increase your taxable income.
2. Appreciated Assets (Stock, Bonds, Real Estate)
If you donate long-term appreciated assets such as stocks, bonds, and real estate directly to a charity, you can avoid paying capital gains tax on the appreciation. Additionally, you may be able to deduct the full fair market value of the asset as a charitable contribution. As a result, you give more to charity, pay less in taxes and have a greater impact.
3. Donor-Advised Funds (DAFs)
Contributing to a DAF allows you to make charitable contributions overtime and receive an immediate tax deduction in the year of contribution. This strategy is useful for those who want to maximize deductions in high-income years and spread out their charitable giving over multiple years. Also, you can invest the funds for tax-free growth.
4. Charitable Lead Trusts (CLTs)
A Charitable Lead Trust is a type of irrevocable trust in which the charity receives a stream of income from the trust for a set period. After the period ends, the remaining assets are passed on to your beneficiaries. CLTs provide a charitable deduction to offset a high income, preserve wealth for future generations, and reduce estate taxes for heirs.
5. Charitable Remainder Trusts (CRTs)
A Charitable Remainder Trust allows you to donate to charity while receiving income for yourself or other beneficiaries for a set number of years or for the rest of your life. After the trust term ends, the remaining assets go to the charity. This strategy provides an immediate charitable deduction and can also help reduce estate and capital gains taxes.
NEED ASSISTANCE
Our team of experienced professionals is dedicated to helping you not only prepare accurate tax returns but also develop tax-efficient strategies that align with your financial and charitable goals. Feel free to reach out to your GO contact today to discuss which charitable planning options best suit your needs and help you maximize the impact of your contributions.
Writer: Diem Bui, CPA, EA, MBA – Tax Manager
Editor: Stacy Rose, CPA – Senior Tax Manager
References
https://www.irs.gov/charities-non-profits/charitable-contributions
https://www.fidelity.com/viewpoints/personal-finance/charitable-tax-strategies