Are you in your golden years and looking for tax-efficient ways to support the causes you care about? As we age, charitable giving can become more meaningful, but it's important to understand the tax implications and benefits of different giving strategies. In this article, we'll explore some clever ways to give back while maximizing your tax benefits, so you can continue to make a difference in the world and leave a lasting legacy. From qualified charitable distributions to donor-advised funds, let's dive into the world of ageless giving.
Qualified charitable distributions (QCDs): If you have a traditional IRA and are over 70 1/2 years old, you can make a QCD of up to $100,000 per year directly from your IRA to a qualified charity. The QCD counts towards your required minimum distribution (RMD) and is not included in your taxable income. This can be a tax-efficient way to donate to charity and reduce your taxable income. Be sure to make the IRA distribution directly to the charity for it to avoid taxation.
For those with charitable intentions, QCDs are a good reason not to convert all of your IRA balances to Roth accounts.
Donor-advised funds: Donor-advised funds (DAFs) allow you to stack years of charitable contributions into an irrevocable charitable account in a single year. You receive an immediate tax deduction in the year you fund the account, and you can parse out the monies over future years. DAFs can be a good option if you want to make a large charitable contribution but are unsure which charities to support or want to spread out your giving over time. You want to fund the DAF in a year that you itemize your deductions to gain the tax benefit.
Appreciated assets: If you have appreciated assets such as stocks, mutual funds, or real estate, consider donating them to charity instead of selling them. By donating appreciated assets, you can avoid paying capital gains taxes and may be able to claim a deduction for the fair market value of the asset at the time of the donation. Consider donating appreciated assets to a DAF as a way to leverage the tax benefit of both strategies.
On the other hand, if you do not expect to need these assets during your lifetime, you may want to hold onto them, as their cost basis will adjust to their full market value at your passing--in other words, your beneficiary will not have to pay capital gains taxes.
One last consideration. It may seem appealing to donate assets that have declined in value. Generally, you want to avoid this approach. Instead, sell those assets, take the tax loss, then donate the cash or donate other appreciated assets.
Estate planning: If you have a large estate and are concerned about estate taxes, you may want to consider including charitable giving in your estate plan. You can leave assets to charity in your will or establish a charitable trust to benefit a charity or cause you care about.
It's important to consult with a financial advisor or tax professional to determine the most tax-efficient way to give to charity based on your individual circumstances. They can help you explore these and other options to ensure your charitable giving aligns with your goals and maximizes the tax benefits available to you.
The content is developed from sources believed to be providing accurate information. The information in this material is for educational purposes only and is not intended as tax, investment, or legal advice. It may not be used to avoid any federal tax penalties. Please consult legal, investment, or tax professionals for specific information regarding your situation. Mayfair Financial and FMG Suite developed and produced this material to provide information on a topic of interest. FMG is not affiliated with the named state-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.