Charitable Giving & Tax Planning

There are many ways to share your wealth. Following IRS rules can even give you a nice reduction in your annual tax bill. Tax planning allows you to give more to your favorite charity and maximize tax deductions.

1. Cash/Check donations – always remember to keep good records of your donations and get receipts. Canceled checks are best backed up by a letter from the organization.

2. Non-Cash donations – (clothing, household items, etc.) – again remember to keep good records of your donations and get receipts when possible. Your deduction is typically 25-30% of the Fair Market Value of the items donated.

3. Charitable Giving accounts (Donor Advised Funds) – DAF’s allow you to donate securities & receive a current year tax deduction for the current market value. The funds are invested & available to make grants to any qualified charity (501(c) (3) organization. Charitable Giving account offers benefits such as:
   • One consolidated tax receipt.
   • Save taxes on appreciated securities.
   • Receive a tax deduction when taxable income is high.

4. RMD (Required Minimum Distribution) at age 70 ½ and beyond from your IRA account. You can fulfil your RMD & be generous at the same time by having a check sent directly from your IRA account to a qualified 501(c)(3) organization. The benefits of this type of donation are:
   • RMD’s are added to your gross income. Donating directly to a charity counts toward annual RMD & doesn’t increase Adjusted Gross Income resulting in lower taxes.
   • Doing this could reduce the amount of taxable Social Security. RMD’s are added to your AGI which could possibly make some of your Social Security income taxable.
   • Reducing your cost of Medicare Parts B & D –Medicare premiums are based on your AGI.
   • Tax deduction if your standard deduction is higher than itemized deductions
   • Overcoming the 50% limit on charitable contributions
   • Shrink your Net Investment Income Tax – (3.8% NIIT on investment income when your AGI is greater than $200,000 ($250,000 for joint returns). RMD’s might move your AGI above these amounts.

You can review 501(c)(3) Charitable Organizations @ http://www.charitynavigator.org/.

Here you can find star ratings, tax status, contact info, financial information, etc.

A little tax planning can stretch the amount you give to charity and reduce your tax bill. Tax planning is a year round event. Not something to think about once a year when your taxes are prepared.