There are many ways to give to charity. You can make gifts during your lifetime or at your death. You can make gifts outright or through a trust. You can name a charity as a beneficiary in your will or designate a charity as a beneficiary of your retirement plan or life insurance policy. Or, if your gift is substantial, you can establish a private foundation or donor-advised fund.
In addition to the personal satisfaction of giving to your favorite charity, you may receive some tax benefits. Here are three ways to potentially receive tax benefits while making charitable gifts.
Income Tax Deduction
Deductible contributions may include money or property you give to churches or other religious organizations, federal, state and local governments, non-profit schools and hospitals, and other qualified organizations. Gifts can be made using cash or property and are deductible subject to certain limitations based on the type of property gifted and your adjusted gross income (AGI). If you are unable to deduct your contributions in the current year because they exceed your AGI limits, under current law you generally have five years to carry over and use this amount.
To claim an income tax deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records, or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.
Avoid the Capital Gains Tax on Appreciated Securities
In general, a taxpayer is allowed a deduction equal to the fair market value of property donated to a qualified charity. If the donated property is “gain” property, and the property has been held by the donor for more than one year, the donor typically does not have to recognize the gain on the donated property.
You can benefit from getting a deduction for the fair market value of the property without paying tax on the gain or appreciation in the value of the security.
Reduce Your Estate Tax
Assets given away during your lifetime will likely not be included in the value of your estate at your death. Gifting appreciating assets can remove the future appreciation from your estate as well, helping you reduce your overall estate tax.
Charitable giving can be a valuable part of your overall tax and estate plan. Not only can you share your wealth with the charity of your choice, you may also receive some tax benefits.