Giving to a cause you support can be an enriching experience. However, you can make charitable contributions in a way that benefits the charity and provides you tax benefits. Here’s a brief look at ways you can make the most of your charitable giving.
Generally, you can deduct cash contributions to a qualified charity up to 50% of your adjusted gross income (AGI) for the year. You cannot, however, deduct cash charitable donations unless you keep a bank record, a receipt or payroll deduction records stating the name of the charity, date and amount of the contribution. For cash gifts greater than $250, you need a written acknowledgment from the charity to substantiate your charitable deduction.
Donate Appreciated Securities
Many individuals sell securities that increased in value and then give the proceeds to charity, but if you sell appreciated securities, the gains can result in a significant capital gains tax liability. From a tax viewpoint, it is typically better to donate the securities directly to the charity. You then avoid capital gains taxes and enjoy a tax deduction for the stock’s full market value, provided you held the shares for more than a year.
If you believe a stock has potential for additional appreciation, you can donate your shares, eliminate the capital gains exposure and then buy the shares back at their market price. This strategy gives you a cost basis equal to the stock’s current value and allows you the chance to enjoy future appreciation at a stepped up basis.
Establish a Trust
If you donate assets through a charitable remainder trust (CRT), you can continue to reap financial benefits from the gifted assets. A charitable remainder trust allows you to donate assets to a trust for the charity of your choice and retain cash flow from those assets during your lifetime. You transfer property to the trust, the trust then pays out distributions to you, your spouse or other designated beneficiary for life or for a set period. When the trust terminates, the charity receives the assets remaining in the trust.
While the charity does not receive your gift until the trust expires, you can claim a federal income-tax deduction for your charitable contribution in the tax year you fund the trust. The tax-deductible amount is the present value of your ultimate contribution to the charity.
These are just some of the tax-saving strategies that may be involved in charitable giving. Your Fifth Third Private Bank financial advisor can help you determine if these strategies are right for you.