‘Tis the season to pay your taxes which means a lot of people are thinking about charity contributions. Giving to charity is not just a generous act in support of a worthy cause but an effective tax planning strategy. When you direct a portion of your assets toward charitable giving you gain tax benefits that help maximize your financial position.
Making a charitable contribution is not as simple as writing a cheque to an organization of your choice, however. These days, a range of giving strategies exist that allow you to calibrate your charity tax deduction in accordance with your needs.
Making the Most of a Charity Contribution
Frequently, individuals include charitable giving in their estate plan to offset estate taxes that would otherwise reduce the assets passed on to loved ones. This is often achieved by making a charitable bequest in one’s will, establishing a donor-advised fund or community foundation, or by investing in a charitable lead trust or charitable remainder trust. The details of each of these options is beyond the scope of this article; suffice it to say that financial advice from an experienced estate planning attorney is crucial to determining the charity tax deduction strategy best suited to your goals.
Increasingly, individuals from all across the wealth spectrum use charity contributions to offset taxes while living. Numerous strategies also exist for this purpose. Most people are familiar with the sort of tax-deductible contributions gained from, say, supporting a fundraiser at your child’s school. Each taxpayer is allowed to claim up to $300 in cash contributions or up to 100% of their adjusted gross income if contributions are itemized. Those making regular or significant charitable contributions will want to consider additional strategies, however.
Establishing a donor-advised fund is not just good for end-of-life giving, but an advantageous approach for significant charitable gifts made in your present, too. Any assets contributed to your fund are fully tax-deductible regardless of whether they have been distributed to a charity or not.
Leveraging Required Minimum Distributions (RMDs) is another giving strategy often cited in financial advice. At age 72 you must begin taking RMDs from your Traditional IRA and these are included in your taxable income. Any distribution donated to charity can be written off, however.
Ensuring Your Charitable Contribution is Put to Best Use
The tax benefits of giving to charity are great but no one donates money for the tax benefits alone. You also want to ensure your generosity yields results. After all, an estate plan is not just about caring for loved ones but about establishing a legacy, too. With this in mind, many individuals place restrictions on how their charitable contributions may be used with the hope of ensuring their efficacy.
Restricted giving sometimes backfires because the regulations grow impossible for an organization to respect as their circumstances grow and change. In extreme cases, this may lead the trustees of a charitable gift to seek court intervention such that restrictions be lifted and assets be put to use. In less extreme cases, it just means your gift is not as effective as it could be.
Striking the balance between retaining control of your charitable giving and ensuring its efficacy requires sound financial advice. It is important to work with a professional when designing a charity contribution strategy.
To learn more about charitable giving and estate planning or to address any other matter related to the subject do not hesitate to reach out to the Deliberato Law Center either by calling us at (216) 341-3413 or using the contact form on our website.
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