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Charitable giving is one way that many people choose to support a certain cause or organization that is near and dear to their hearts. Financially, charity giving can be an important aspect of your estate, tax, and financial planning. In reality, 26% of taxpayers itemize charity deductions on their tax returns.
You may be unclear about what sort of charity giving is ideal for you and your philanthropic aims depending on the type of your estate, the amount of money you want to contribute, and how you want to give it. There are various methods to offer, each with its own set of advantages and disadvantages based on what you’re searching for.
Donor-Advised Funds (DAFs)
A donor-advised fund is a sort of philanthropic giving in which you make a non-refundable donation to a nonprofit of your choice, either in cash or stocks. In 2018, this sort of contribution contributed $23.42 billion to charities1.
The benefit of this sort of donating is that you can direct the fund’s administrator to which grants you believe should be given if you feel strongly about the cause or organization and want to be involved in how the funds you provide are used. You also receive the maximum tax benefit from the IRS for your gift right away, and you can designate the money to continue even after your death.
Property for sale
If you no longer use property and would have to pay a big tax if you sold it, you may find that donating the property to charity is a smart option. If you are still living in the property you want to give away, you can set it up as a charity contribution by having the deed transferred after your death.
At that point, the home’s worth will be deducted from your estate, minimizing your estate taxes. Donating real estate may also provide you with a significant tax benefit. You may be eligible for a tax deduction equivalent to the fair market value of the real estate in some situations.
Cash
A cash donation is the most basic type of charity giving. Your tax deduction is equal to the amount of money you gave less the value of any products or services you received in exchange. Memberships to non-profits, such as a zoo or another organization, are considered monetary donations. A financial donation does not include the transfer of any titles, certificates, or stocks. The advantage of gifting cash is that it is straightforward to do, and there are no complicated tax deductions or perks to deal with.
Stocks
Contributing long-term valued securities, such as stocks, is one of the most tax-efficient methods to gift. There are two significant advantages to donating in this manner.
One, because you are not selling your assets, there are no capital gains taxes to worry about, and the greater the appreciation in the stocks, the greater the tax savings.
Donating Property to Charity
Giving your assets to charity, such as retirement accounts and life insurance policies, has several advantages. In addition to any charitable income tax deduction, your estate will not have to register the gifted income, which can save you money on the estate tax. Many people also choose to use assets that would ordinarily have an income tax burden, leaving tax-deferred accounts in their estate for beneficiaries, providing them with a tax-free inheritance.
You might also have actual assets to contribute to charity. These goods, like art and jewelry, may entitle you to a tax benefit in the amount of the assets you’ve donated. If your item is relevant to the charity, such as paintings to a museum, you are more likely to earn a larger tax credit than if you gift something unrelated to the organization’s goal.
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