This is good advice from a friend of the Foundation, Kyle Rudduck. If need some assistance, give the Foundation a call at 937-566-1634 and we will be happy to assist you!
As the old saying goes, “it is better to give than receive.” And while it’s hard to argue that giving a perfect gift is extremely gratifying, when it comes to charitable giving, it feels even better when you can give to your favorite organization AND receive a reduced tax bill in the process.
If you’re considering (or would like to find a way) to support your local community this season while also receiving a tax benefit for your generosity, consider three possible opportunities below:
Donate Stock with High Capital Gains – So you have a stock that you purchased years ago that has continued to grow and accumulate in value. Aside from the risk created by a single stock representing a disproportionate amount of your portfolio (*ahem* General Electric), selling the stock could create a sizeable capital gains tax liability as well. But, if you’re charitably inclined, the IRS allows you to donate these shares to a qualified charity and receive a tax deduction as if you had donated cash (certain AGI limitations notwithstanding). The main advantage of this strategy is that, by donating, you can completely avoid triggering the capital gains taxes you would in a sale. Further, because the charity is exempt from taxes, it can sell upon receipt and convert your gift into the cash required to fund its mission. Lastly, after making your stock donation, consider using the cash that you would have otherwise contributed to the organization and instead re-purchase investments in your portfolio. In doing so, the cost basis of your investment will increase potentially further reducing capital gains taxes for you into the future.
“Bunch” Charitable Contributions – When filing your tax return, the IRS allows for you to claim the greater of a “Standard Deduction” (which is set by Uncle Sam) or the total of all itemized deductions you’ve accumulated throughout the year. One of the many changes made to the tax code last year with the passing of the “Tax Cuts and Jobs Act of 2017” was a near doubling of the Standard Deduction that is offered to taxpayers (for 2018, it is $12,000 for individuals and $24,000 for married filers). For many, this increase meant that itemized deductions became a thing of the past -- charitable contributions included. However, for those that are impacted and remain interested in earning a tax benefit for their contributions, consider “bunching.” Bunching is a strategy whereby instead of contributing a smaller, level amount each year, you would “bunch” multiple years’ worth of contributions into one. For example, instead of contributing a level $5,000 to your favorite charity each year, 3-5 years’ worth of contributions ($15,000 - $20,000) would be bunched into a single lump sum with no contributions being made for the next 3-5. By utilizing this strategy, your total outlay over the entire period is unchanged (as is the benefit to your favorite charity). However, by gifting in this manner, you may be able to generate tax benefit for your charitable activities while also taking advantage of the increased Standard Deduction in off years. Finally, as a compliment to this strategy, consider establishing a donor advised fund to be the recipient of your bunched contributions. With a donor advised fund, you’re able to make contributions (and receive full tax benefit in the year they are made) but then have flexibility to hold your contributions in the fund and disburse them to your favorite charities in the years to come. If you are interested in establishing a donor advised fund, consider the Clinton County Foundation which allows for you to establish one under its umbrella.
Make a Qualified Charitable Distribution DIRECTLY from Your IRA – As mentioned above, one of the major changes that came from the Tax Cuts and Jobs Act of 2017 was the near doubling of the Standard Deduction that is allowed by the IRS. And while the IRS continues to allow those over 70.5 to exclude from Adjusted Gross Income the portion of their Required Minimum Distribution that is contributed to a qualified charity, with the passing of the tax law, this strategy has become even more meaningful. Historically, aside from the possible impact on certain phaseouts and the taxation of Social Security benefits, there was very little difference between making contributions of RMDs to charity directly or taking the RMD personally and then contributing to the charity. However, because the standard deduction has now been doubled, there is an increased risk that you may no longer be itemizing your deductions and therefore would NOT be able to receive a tax benefit for your contribution – even though the RMD would still be included in your income. To help prevent your RMD from being included as income, ensure any checks are made payable directly to the qualified charitable organization and not to yourself personally.
Tis the season of giving and my hope is that this year your favorite hometown charitable organization will be the beneficiary of your gifts while you also may receive benefit from the IRS!
** This article does not constitute tax advice and should not be taken as such. Everyone’s situation is unique. Prior to making any decision regarding your personal tax or investment situation you should consult with a qualified professional to ensure it is appropriate for you. **