The holiday season is the time of year when we smile a little more, and really appreciate all that we have in our lives. We look forward to spending time with our loved ones, cookie exchanges, holiday shopping, and many other festive holiday activities. It is the season of giving and a great time to help those in need. Charitable giving not only benefits the community and the organizations dedicated to uplifting those who need it most, but it can also be a financial benefit to the donor by reducing certain tax liabilities. Planning with your financial advisor can help strategize how to incorporate charitable giving to fit your overall plan, ensuring that the causes most important to you and your family receive the benefits of your generosity.
There are several ways to reduce your tax liability through charitable giving. The most well-known way is to donate with cash, and when gifted to a qualified public charity, you can deduct up to 50% of your adjusted gross income. However, tax breaks can be limited when donations are in small amounts, so it may not be the most effective tool when you have larger tax obligations.
An alternative to cash donations is to gift publicly traded stocks and securities. When held over one year, this strategy could decrease, or possibly eliminate, capital gains tax and effectively increase the amount given to charity by up to 20%. Furthermore, you can claim a fair market value deduction for the year the stock was gifted.
Additional non-cash donations can include real estate, privately held business interests, and assets such as life insurance. These can be donated directly or held in a Donor-Advised Fund. “Donor-advised funds have become increasingly popular, primarily because they offer the donor greater ease of administration while still allowing them to maintain significant control over the placement and distribution of charitable gifts.”
If you are over 72, you can use your Required Minimum Distribution (RMD) for charitable giving. Donating your RMD a great option if you do not need the funds; an RMD Donation is tax free up to $100,000 while reducing your income and tax liability.
Financial planning encompasses not only planning for tomorrow but building generational wealth and legacy planning for your loved ones. Charitable giving can be a beneficial tool to minimize your estate taxes when bequeathing inheritances to your heirs through the structuring of a charitable trust. A Charitable Lead Trust provides income to your qualified charity while you are living, and then passes the remaining assets down to your beneficiaries. A Charitable Remainder Trust is set up to allow you to take an immediate deduction of your donation, permits you to receive income while you are living, and then passes the assets to the charity upon your death. Each trust works to reduce the overall estate tax liabilities.
Charitable giving not only gives you the ability to make a difference in the causes that are most important to you, but it also provides benefits to you and your loved ones today and in the future. It is important to discuss all your options with your financial professional to understand the complexity of your personal situation and devise a plan that ensures your wishes are met.
*information is accurate as of 11/03/2022
Silverhawk Asset Management LLC, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.