Even in the midst of the holiday rush, there’s still time to think about your 2019 tax strategy. Do you run the risk of paying taxes? Are you in need of tax deductions?
The Community Foundation of Cleveland and Bradley County can help you navigate your charitable giving with some creative asset options. Your donations can go to funds that we create for you, or funds that are already established that have special meaning to you. The Community Foundation is made up a collection of separate charitable funds each established by different individuals, families, businesses, government entities and other nonprofits and foundations each with a different charitable goal in mind.
Below are some interesting options to help alleviate your tax burden and make a positive impact in the community at the same time. Now that’s a great holiday gift!
Gifts of Appreciated Property
You can benefit from giving appreciated property, such as publicly traded securities and real estate. If the you have owned these assets for at least one year and donate directly to a designated charity, you are entitled to a charitable deduction equal to the full fair market value of the asset, and there is no tax on the gain.
Retirement Plan Assets
Naming your charity as a beneficiary of your retirement plan, IRA, 401(k), 403(b), or other qualified plan is a simple way for you to give while realizing tax savings. Retirement plan assets are subject to income tax when distributed to heirs; designating your charity as beneficiary of a portion or all of a qualified retirement plan will avoid the income tax that might otherwise be due.
Qualified Charitable Distributions (QCD)
The QCD allows a donor to give up to $100,000 from a traditional IRA or Roth IRA each year directly to charities. The distribution counts toward your IRA’s Required Minimum Distribution (RMD) for the year, and will not be included in the owner’s adjusted gross income. A QCD gift can be a great way for a donor to avoid having to pay taxes on their RMD, while supporting the charities he or she loves. Importantly, the tax benefit remains even if the donor is among the 90% of taxpayers who don’t itemize deductions. To qualify, you must be a least 70-1/2 at the time of the gift, and the QCD assets must be transferred directly to the charity from the IRA custodian, such as a bank or mutual fund company.
Donor Advised Funds (DAF)
Donor-advised funds are the fastest-growing charitable giving vehicle in the United States. Making a gift through a DAF is one of the easiest ways to give to charity while at the same time establishing the means for a philanthropic legacy that can be endowed in perpetuity. Donors can open a fund with as little as $5,000, making donations to the charities of their choice as the need or desire arises. The initial funding of the DAF is deductible, however when grants are made, there is not an additional tax deduction.
Bunching is a giving strategy that front-loads multiple years of charitable donations into a single tax year. With this strategy, a donor can once again realize the tax benefit of itemizing deductions. Donors with sufficient flexibility can now pick a target year to itemize, transfer several years’ worth of charitable giving to a donor advised fund in advance and take a big deduction only in the target year. During off years, the donor’s favorite charities can still receive checks from their donor advised fund. In this way, no charitable deductions are wasted during the off years when the donor is taking the standard deduction.
If you would like to learn more, please contact Cathy Barrett.