7 Smart Ways to Give to Charities
Smart ways to give to charity:
For many Americans, it simply isn’t worth itemizing deductions each year, including charitable giving, because they get bigger tax break with the standard deduction. Below are 7 Smart Ways to give to charity:
- Qualified Charitable Donation (QCD) - If you have retirement accounts, you are likely familiar with required minimum distributions, the amount that the IRS requires you to take from your IRA and 401k accounts each year after age 72. Normally, if you take money out of your IRA and then give the money to charity, you’d owe ordinary income taxes on the withdrawal before donating the remainder. But with a QCD to a charity, the entire IRA withdrawal goes directly to the charity and you don’t owe any income tax. The donor must be 70.5 years old. The maximum gift is $100,000 and the donated sum counts against your annual required minimum distribution. You don't have to itemize to get the tax free distribution. It's called a Qualified Charitable Distribution (QCD) and it's used to offset your required minimum distribution (RMD) from your IRA account. The gift must be made to a 501c3 or in some cases other charitable accounts.
- Gifting highly appreciated stocks. If you have a stock that you’ve held onto because of the large capital gain you can give the security directly to a charity and get recognition for the entire value of the stock without recognizing any of the taxable gains as long as you’ve owned the asset for more than a year. This can also be used as an itemized deduction if you’re above the standard deduction. A note of caution: before donating stock or a mutual fund to a charity, be sure the organization has the financial infrastructure to accept such assets. The sooner you do this the better, since complicated tax strategies can take time and need to be finalized by December 31 to be effective for the tax year.
- Bunching. If you give monthly or annual amounts to a charity, consider giving multiple years’ worth of contributions to bunch the amount to be eligible for an itemized deduction.
- Donor advised fund. You can take advantage of gifting highly appreciated stocks and bunching by making a contribution to your donor advised fund. You get recognition for the charitable contribution in the current tax year and you can direct disbursements to 501c3 or churches over many years. Donor advised funds are surprisingly easy to administer using a national partner through your financial advisor or a local community foundation. Donor advised funds are like tax-advantaged charity brokerage accounts. These funds offer the technique of “bunching,” or combining several years’ worth of donations of cash or appreciated assets, like stocks or mutual funds, into a single year. When you set up a donor-advised fund account, the earnings on your contribution compound over time, depending on the investment choices and record keeping is easy.
- Look for matching contributions. Multiply the impact of your gift by partnering with a matching organization. Ask your employer or other community organizations if they have a matching program you qualify for.
- If you can’t get a tax deduction – get points? Use one of your mileage or cash back credit cards to make your charitable contribution.
- Know your charity. Be an informed donor. Verify the stewardship of the organizations that you give to by reviewing these independent sources: