Consider an IRA Charitable Rollover
Individuals who are 70 ½ or older can make a qualified charitable distribution of up to $100,000 each year from their Individual Retirement Account (IRA). In addition to avoiding income taxes on the distribution, you’ll also lower your overall estate and future estate taxes. Just keep in mind that money must be from a qualified retirement account to a charity that meets IRS regulations.
Give appreciated securities
Consider donating securities instead of cash. If you sell a profitable investment, such as publicly traded stock, you will be subject to an approximately 25 percent capital gains tax. If you transfer the stock to a charity instead, you avoid capital gains taxes on the appreciation and pocket a tax deduction based on the fair market value of the investment on the date of the donation.
Think beyond your checkbook
Donating valuable personal property such as real estate, farm equipment, oil and gas royalties, artwork or even jewelry is an innovative way to turn your non-cash assets into charitable gifts. You’ll receive a charitable tax deduction for the fair market value of the property on the date of the gift, but since these items are not publicly traded, it’s necessary to obtain an independent third party appraisal on the item’s value to determine the deduction. This appraisal then needs to be reported on your tax return.
Give to get back
You can use appreciated securities or property to fund a charitable remainder unitrust that can offer you or a beneficiary an income stream. After transferring your assets into a trust, the Foundation will invest, protect and manage the trust funds. For the rest of your life or a period up to 20 years, you will be paid a fixed percentage based on the value of the trust, and the trust value is reevaluated every year. There are three primary tax benefits: You will receive an immediate charitable tax deduction on the donated assets; you will not pay estate taxes on the assets since they will be donated to Texas A&M outright upon your death; and last, this type of gift allows you to turn assets that aren’t producing income into cash without paying a capital gains tax on any profits gained. You can also add to the trust each year, thereby increasing its value and your annual payments.
Be aware of charitable deduction limits
The 2018 Tax Cuts and Jobs Act, which took effect Jan. 1, 2018, included a change in the deduction limit for cash gifts. Before the act, cash gifts to public charities or public foundations were limited to 50 percent of an individual’s adjusted gross income. The new law increases this limit to 60 percent of adjusted gross income, meaning you can give more and deduct more annually. The charitable deduction limits for gifts of stock remained the same at 30 percent. You can still carry forward deductions for five years. For example, if your adjusted gross income is $1 million and you gave an $800,000 charitable gift, your charitable deduction would be $600,000 for the year you made the gift. You would receive a deduction on the remaining $200,000 the following year.
Know the standard deduction
The 2018 Tax Cuts and Jobs Act doubled the standard deduction for married individuals filing joint returns to $24,000. If your tax deductions normally fall short of itemizing, you may benefit from using the “bunching” strategy. This means that you pile on your itemized deductions every other year, giving yourself the maximum itemized deduction for that year. You then take the standard deduction in the alternate years. For example, you could make your normal contributions to a given charity during the year and then prepay the entire subsequent year’s contributions in a lump sum in December of the current year. You’re giving the same amount of dollars that you would over a two-year period, but bunching them into one year to get yourself over the new standard deduction and itemize.
Make a gift that costs nothing now
Many gifts, such as making a bequest in your will or naming a charity as beneficiary of your IRA, cost you nothing now. While there are no immediate tax benefits to these types of gifts, they will lower your estate taxes.
Use a match
You can maximize your charitable giving through utilizing employer matching funds. You will not personally get a tax deduction for the match, but this is a great way to double or even triple your charitable contributions. Ask your employer if they match gifts for educational purposes and make sure you follow their instructions for obtaining the match.
Learn more about employer matching here.
Remember the deadline
The deadline for charitable giving is Dec. 31, 2018. Many folks make their year-end contributions in December by credit card. When using a credit card, it is important to note that contributions you charge are deductible in the year you make the charge; not when the bill is paid.
This article is intended for informational purposes only. You are encouraged to consult with your adviser when making charitable gifts.