Several tax-saving strategies exist that not only help you support your favorite qualified charity but also reduce your tax liability to Uncle Sam. Most people are well aware of giving cash or check, but there are two not-so-well-known high-powered, tax-saving charitable giving strategies that provide extra bang for the buck. Prior to year-end, consider making a gift to your favorite qualified charity using one of these two strategies.
Strategy 1: IRA to Charity
Qualified charitable distributions (QCDs) are distributions made from an Individual Retirement Account (IRA) directly to a qualified charity, and up to $100,000 can be gifted and excluded from the taxpayer’s gross income. Individuals aged 70-½ and older are allowed to take part in this charitable giving strategy. Although the gift cannot be included as a charitable deduction, the income stays off the income tax return, potentially saving the taxpayer federal taxes (and sometimes state income tax, depending on the state of residence).
Strategy 2: Donor-Advised Fund
A donor-advised fund (DAF) is a charitable account set up with a custodian/broker that can receive assets from an individual, and subsequently the funds can be sent to a qualified charity. The individual receives a tax deduction (up to 30% of AGI if appreciated securities are used) when making a gift to the DAF. The tax deduction is based on the market value of the appreciated security. This strategy works well when an individual has appreciated securities, like stocks, that he or she can gift.
If you are looking for ways to minimize your tax obligation before the end of the year, ask your tax professional or financial advisor about these two strategies. Although they are not complex, you will want to make sure you understand all of the rules prior to action.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Please see Important Disclosures at www.savantcapital.com. This is intended for informational purposes only and should not be construed as tax or investment advice. Please consult your tax and investment professionals regarding your specific situation.