In today’s world, aligning one’s values with charitable actions is fulfilling and can provide significant tax benefits. Legacy Private Trust Company offers a comprehensive guide for understanding and maximizing tax deductions through charitable donations. This guide aims to help individuals and families navigate myriad giving strategies to make the most of their philanthropic endeavors.
Understanding Charitable Giving Strategies
Philanthropy is more than just generosity; it’s a strategic decision that can impact both the giver and the recipient. There are numerous ways to contribute, each with its own tax implications and benefits. Here’s a breakdown of the most common strategies:
- Direct Gifts of Cash: Cash donations, which can be made through checks, credit cards, or payroll deductions, are the simplest form of charitable giving. The Internal Revenue Service (IRS) allows you to deduct cash gifts up to 60% of your adjusted gross income (AGI) when given to public charities and up to 30% for donations to private foundations. However, if your annual donations are small, consider ‘bunching’ them in a single year to maximize the tax deduction under current laws.
- Gifting Appreciated Assets: Donating assets like publicly traded stocks or other appreciable assets can be a wise move. You can avoid the capital gains tax due upon sale by directly gifting these assets to charities. You can claim a deduction of up to 30% of your AGI for public charity donations, and it’s capped at 20% for private foundations.
- Donating Other Types of Assets: Beyond stocks, you can also gift real estate, life insurance policies, and other capital assets. These contributions have their own rules and limits but can be carried forward for up to five years if they exceed your deduction limits in the year of the gift.
Specific Tax Deduction Limits for Charitable Gifts
The IRS sets annual limits based on the type of gift and the recipient charity:
- Cash to Public Charities: Up to 60% of donor’s AGI.
- Cash to Private Charities: Up to 30% of donor’s AGI.
- Long-term Appreciated Property to Public Charities: Up to 30% of AGI.
- Long-term Appreciated Property to Private Charities: Up to 20% of AGI.
Sophisticated Giving Vehicles
- Charitable Remainder Trust: This trust allows you to make a gift and retain a taxable income stream for a set period or life. The remaining assets go to the charity tax-free after the term, and part of your contribution is tax-deductible.
- Charitable Lead Trust: A tool for estate planning, this trust first pays income to a charity for a set term, and then the remaining assets go to non-charitable beneficiaries.
- Qualified Charitable Distribution (QCD): For those over 70½, up to $100,000 can be donated directly from an IRA to a charity. This can help avoid income tax on required minimum distributions after age 73.
The Importance of Tax Planning in Charitable Giving
To ensure the most effective and tax-efficient giving strategy, it’s crucial to consult with tax, legal, and financial professionals. They can guide you in selecting the right assets, timing, and forms of gifts to align with your philanthropic goals and financial planning.
Legacy Private Trust Company encourages everyone to explore these avenues of giving to maximize tax benefits and make a lasting impact on the causes dear to their hearts.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
