Tax-Smart Giving Ideas
The government provides us a number of tax advantaged approaches for giving to charitable organizations like our church. This list is not tax advice but is intended to give you a starting point to pursue with your financial advisor.
Give Appreciated Assets
Giving appreciated investment assets directly to the church can have a big tax benefit. By contributing appreciated assets such as stocks, bonds or real estate, you can avoid the capital gains tax that would have incurred by selling the assets. You can also take the charitable deduction for the full market value of the donated assets. Upon receiving the assets, the church sells them to convert the gift to cash.
Donor-Advised Funds
A donor-advised fund (DAF) is a charitable investment account that you can open through an investment firm. Examples of this are Fidelity Giving Fund and Vanguard Charitable Fund. You can make tax-deductible gifts to your DAF using cash or appreciated investments from other accounts, then choose when and where you want to designate money to be sent to the charity. It allows for a bunching strategy, where a multi-year donation is made to the DAF and deducted in the year donated.
Qualified Charitable Distributions
A qualified charitable distribution (QCD) allows individuals who are 70½ years old or older to donate to one or more charities directly from a taxable IRA, without paying tax on the distribution. This approach is popular with people who receive Required Minimum Distributions (RMDs), as it offsets these and avoids the taxes owed.
Charitable Remainder Trust
A Charitable Remainder Trust (CRT) is similar to a Donor Advised Fund in that you can contribute a multiyear amount and receive the tax benefits at one time. A key benefit is the ability to establish an annuity fund to the living beneficiaries before the “remainder” is donated to charity upon your passing. It involves trust documents and is a bit less flexible than a DAF.