How to Make Your Charitable Contributions Count and Maximize Tax Benefits

charitable giving

There are so many good causes out there, and so many charitable organizations to serve them.   What is important to you?  Perhaps it is research to find a cure for Alzheimer’s Disease, cancer or some other disease that claimed the life of a loved one.  Or maybe you want to save abused animals or the rainforests, help underprivileged children, or aid the victims of domestic violence or natural disasters.   You may wish to provide funds to a not-for-profit hospital or your religious organization to assist in meeting its needs, or to your alma mater to offer scholarships or facilitate research or building improvements.  Whatever it is that you are passionate about, there are many ways to provide financial support for your causes.   

The easiest and most common way is to make a donation of cash directly to an organization. You can also donate assets other than cash to a charity.  For example, may wish to donate used clothing or household items (think cleaning out those closets and cabinets!), or even a car to your favorite charity.  In accordance with current tax laws and limitations, you may be able to deduct such cash donations, or the value of non-cash donations, made to qualified charitable organizations on your income tax return.  This is a great way to offset some of your taxable income and choose where and how your hard-earned dollars are spent.

You may have stocks that have gone up in value since you purchased them, thereby resulting in a taxable gain if you were to sell them to donate the cash.  But if you donate these appreciated assets to a qualified charitable organization, you may be able to take an income tax deduction (subject to limitations) and the tax-exempt charity can sell them with no capital gains tax due.

Donor Advised Funds (DAFs) and private foundations may also be options for you, considering your long-term charitable goals. 

In any event, before making any large charitable gifts, you should consult with your tax advisor to plan for and determine the deductibility of your donations, and consider the timing and best way to make your donations to achieve any tax benefits that may be available to you.

In addition to making donations during your life, you can leave a legacy gift to charitable organizations.  This can be done by including a gift in your Will or Revocable Living Trust.  It can be a specific dollar amount or certain a non-cash asset, a percentage of your total estate or trust, or even a contingent gift that will be made only if you have no family living.

You can also name a charity as a beneficiary on life insurance policies or retirement accounts (e.g., Individual Retirement Accounts (IRAs)).   Distributions from a traditional IRA are taxable income to the recipient in the year received.  However, qualified charitable organizations do not pay income tax, so naming one as a beneficiary on such an account provides even more tax benefit - the charity that you choose to receive all or a portion of your IRA will be able to use 100% of that IRA distribution for its purposes, rather than giving a cut to Uncle Sam.    

If there is a cause that is important to you, and you would like to provide financial support to that cause, KH can work with you and your tax advisor to make the gifts to the organizations, either now or upon your passing, in a manner that will assist the charitable organization in achieving its mission, and realize any tax benefits that may be available to you and your family. 

Contact Kelleher + Holland, LLC Today!