Charitable giving is a powerful force for addressing critical needs in our communities, and it’s a cornerstone of philanthropy in the United States. Individuals and families contribute an astounding average of over $1 billion to charities every day. What many might not realize is that the U.S. tax code recognizes the value of giving and provides a variety of tax incentives to encourage and support those who wish to use their resources to make a positive impact. In this blog, we’ll explore the tax advantages of charitable donations and how Tax Law Advocates can help you maximize these benefits.
Tax Strategies for Charitable Contributions:
While many people are aware of the ability to deduct donations to charity from their income taxes, there are strategies that can enhance the impact of your giving. Let’s delve into some of these tax strategies:
Long-term Appreciated Assets
Donating long-term appreciated assets such as stocks, bonds, or real estate to charity can be highly advantageous. When you do this, you generally avoid paying capital gains tax, and you can take an income tax deduction for the full fair-market value. This deduction can be up to 30 percent of your adjusted gross income.
Combine Multi-Year Deductions
Some taxpayers might not have enough deductions to surpass the standard deduction threshold set by tax reform in 2017. However, you can still benefit from a tax perspective by “bunching” multiple years’ worth of charitable giving into a single year. In the off-years, you can take the standard deduction.
Estate Planning
Incorporating charitable giving into your estate planning can substantially reduce or even eliminate the burden of estate taxes for your heirs. Naming a charity, such as Fidelity Charitable, in your will or as a beneficiary of a qualified insurance policy, retirement plan, or trust can help ensure that your legacy lives on.
Donor-Advised Funds
Donor-advised funds provide a dedicated account for charitable giving. When you contribute to a charity that sponsors a donor-advised fund program, such as Fidelity Charitable, you become eligible for an immediate tax deduction. You can then recommend grants to IRS-qualified public charities over time while allowing the funds to grow tax-free. These funds offer benefits not only in organizing and planning giving but also in terms of income, capital gains, and estate taxes.
Deferring and Reducing Taxes through Charitable Giving
Charitable contributions can significantly reduce three types of federal taxes: income, capital gains, and estate taxes. Here’s how you can defer or reduce taxes through charitable giving:
Income Tax Strategies
Donations to 501(c)(3) public charities qualify for an itemized deduction from your income. This can help minimize your overall tax liability because the tax rate is applied to a reduced income. There are numerous ways to maximize this deduction, such as bunching charitable contributions into a single high-income year.
Capital Gains Tax Strategies
Donating long-term appreciated assets can reduce your capital gains tax liability. You can deduct the fair market value of your donation from your income taxes while also minimizing capital gains taxes, which can be up to 20 percent. This strategy is particularly beneficial for assets like stocks, mutual funds, or real estate.
Estate Tax Strategies:
Properly structured gifts and donations can remove assets from your estate before they are subject to estate tax. Charitable tax strategies for estate planning can be complex but offer significant benefits. Leaving assets to charity can result in an unlimited charitable deduction, and careful selection of assets for distribution to various beneficiaries can reduce overall tax burdens.
Incorporating charitable giving into your tax planning can have a significant impact on your overall financial situation while allowing you to support the causes you care about.
How Tax Law Advocates Can Assist
Tax Law Advocates is dedicated to helping individuals and businesses navigate complex tax scenarios. Our team of tax experts specializes in making sure you claim every deduction you’re eligible for, including those related to charitable giving.
Tax Deduction Assessment
We’ll thoroughly analyze your financial situation and charitable contributions to determine which deductions you qualify for, helping you maximize your savings.
IRS Compliance
We’ll ensure that you meet all IRS guidelines, reducing the risk of audits or legal issues.
Legal Expertise
Our team provides expertise in dealing with tax-related matters, ensuring that your charitable contributions are tax-efficient and compliant.
Tax Planning
We can help you plan for future tax deductions, making sure you’re well-prepared for tax season.
By working with Tax Law Advocates, you can ensure that your charitable giving is not only fulfilling but also optimized for tax savings. The money you save through these strategies can be reinvested in your giving initiatives, enabling you to make an even more significant impact.
To learn more about how Tax Law Advocates can assist you in making tax-efficient charitable contributions, get in touch with us today at 855-612-7777 or visit our website.
Understanding and utilizing the tax benefits of charitable giving can empower you to support causes that matter most to you while also reducing your tax liability. Tax Law Advocates is here to guide you through this process, ensuring that you receive maximum tax advantages from your charitable donations.
