If you happen to be charitably inclined there are a number of ways to stretch your contributions, reducing your tax burden and increasing funds to deserving organizations. Before writing a check, consider the following charitable contribution strategies:
IRA Charitable Rollover Provision – Made permanent in December through the PATH Act of 2015, this law permits individuals who are 70½ or older to transfer funds directly from their traditional IRA to eligible charitable organizations. The provision has a cap of $100,000 for charitable distributions from individual IRAs each year. The amount distributed directly to an eligible charity may be excluded from gross income, and will count towards your IRA’s required minimum distribution for the year, however you cannot additionally claim a charitable contribution tax deduction.
Who will benefit from this provision?
- Donors who itemize deductions and whose charitable contributions are reduced by the percentage of income limitation
- Individuals who do not usually itemize their deductions
- Individuals in states where the operation of state income tax law would offer greater benefits as a result of a direct charitable contribution
You can also name a charity as a beneficiary of your qualified investment account, such as IRA’s, 401k or 403b plans, etc. While there is no current tax deduction, the donation will transfer tax free to the charity upon your passing.
Donation of Highly Appreciated Securities – One alternative to cash contributions is the donation of appreciated securities. By gifting appreciated securities held more than one year, you are able to deduct the fair market value of the security, up to 30% of adjusted gross income if gifted to a public charity. In addition, you are able to avoid the capital gains tax and 3.8% Medicare surtax that you would owe if you sold the securities. The charitable organization will not be responsible for any taxes on the subsequent sale of the securities.
Donor Advised Funds – Donor advised funds are pooled monies managed by a charitable organization on behalf of individuals or organizations. Donations are tax deductible in the year contributed, and assets are invested and managed in an account established by the donor. Though no longer in control of the assets, the donor does suggest grants for distributions and the account can be distributed at once or over time, to qualifying charities.
Other Vehicles – Charitable Remainder or Lead Trusts, Private Foundations and Pooled Income Funds all entail set-up and maintenance costs, some compliance oversight, and legal assistance, but for high net-worth donors, these vehicles may provide the desired level of control and flexibility.
Be aware that most itemized deductions are subject to reductions for anyone with gross income (in 2018) in excess of $261,500 ($313,800 for couples).
We understand your primary motivation to donate is altruistic; however these strategies may offer additional tax incentives. Please contact us if you’d like to discuss any of these opportunities further! We’re happy to collaborate with your accountant to determine if any of these strategies are right for you.