Win-win charitable donation
December 19, 2022
The holiday season is a special time to donate to charity as well as family and friends. Many people will donate to charity this holiday season. This is because you are supporting a cause that is meaningful to you. But what if you could do good for charity and your taxes at the same time?
Charitable donations can secure tax deductions that save money. You can reduce your tax liability by making a simple plan and willingly using it in place of cash donations. Check out these charitable donation tax strategies to create a win-win philanthropic plan that you can implement throughout the year!
bundle donation
The Tax Cuts and Jobs Act introduced higher standard deductions, leaving many taxpayers unable to classify and write off items of charitable donations. By bundling or grouping multiple annual contributions in one year, you can set a higher deductible for that year and apply the standard deductible for other years. We recommend aligning this strategy with high-income years.
donate valuable assets instead of cash
If you have an asset that has appreciated in value over time, selling the asset could result in a capital gain and increase your tax liability. By donating assets directly to a charity, you may avoid paying capital gains tax and, if itemized, may receive a tax credit against the fair market value of your assets. You don’t even have to pay taxes!
Donate directly from the IRA
If you’re 70 ½ years old or older, you can send up to $100,000 directly from your IRA account to charity and avoid paying taxes on your distributions. If your retirement assets are in a 401(k) or other similar retirement plan, you will need to transfer the funds to a rollover IRA before using this strategy.
Open a Donor Advised Fund
A Donor Advised Fund (DAF) is like a charitable investment account whose sole purpose is to support interested charities. You can donate cash and/or high value assets and make direct payments to your favorite charities at any time.
- DAF is a great tool to use when collecting donations because you can keep your money in DAF and donate it to charity over multiple years.
- Not all charities accept highly valued assets, but the good news is DAF will. So, use DAF to promote your high-value asset donation strategy.
I love sharing my time, talents and treasures with Mainsprings, Haiti Healthcare Partners, Savvy Ladies and several other charities. Reach out and tell us what charity or cause you would like to support! At MainStreet Financial Planning, we are happy to help you create a win-win charity plan.