Giving to organizations close to your heart often offers an added bonus of a reduction in your tax obligations. With some planning, you may be able to increase the tax benefit as you consider the gifts you want to give. Here are some tips:
Cash donations. Donations are deductible (generally up to 50% of your adjustable growth income). The cash benefits of this deduction are dependent on your overall tax rate. If you’re in the 10% tax bracket, a $10,000 gift would result in a $1,000 tax savings. If you’re in the 28% tax bracket, the same $10,000 would result in a $2,800 tax reduction.
Appreciated stock. If you regularly gift cash but also have taxable investments with unrealized gains, it may be preferable to give a portion of your stock rather than cash. By giving an appreciated stock, you will both receive a deduction for the market value of the stock that you gift as well as reduce your future tax liability for potential future capital gains.
Accelerate deductions for future giving. Use of a donor advised fund allows you to give in the current tax year (either cash or preferably appreciated stock) and then make grants to qualified charities over time. This can be particularly appealing if you’re looking to maximize charitable deductions in the current tax year to fund giving over time. This strategy becomes even more appealing if you are in a high tax bracket today but anticipate you’ll be in a lower tax bracket in the future.
Miles driven. If you drive yourself in service to an approved charity, you are eligible to deduct 14 cents per mile. Keep track of your travel to board meetings, volunteer hours, etc.
Donation of goods. When giving clothing or household goods, make sure to use a current fair market value for the donation value. If giving a larger item like a vehicle, you may need an appraisal.
Keep track. You need to keep receipts and journals for the contributions (cash, goods, travel) that you make for IRS purposes. Also, make sure that you’re giving to a qualified organization.
Consult with your financial team. Whenever you’re looking to capitalize on tax advantages, it’s important to consult with a team that knows about the specifics of your situation. Communicate with your CPA or tax advisor and include your financial planner to make sure that your strategy is sound and your gifting intent is being fulfilled.
It’s win-win to support causes that are important to you and also reduce your tax obligations. Make sure that you’re taking the time to capitalize on both!
Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2013, Melissa was honored by Financial Advisor magazine in the Research All Star List for the third consecutive year. In addition to her contributions to Money Centered blogs, she writes investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.
Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional. C14-016527