This article was written by Edward Jones for us by your local Edward Jones Financial Advisor, Tyler Simonds. Edward Jones, Member SIPC. You can reach Tyler at 410-398-4214
Can you Make Charitable Giving Less
It’s the season of generosity. In addition to considering gifts for your loved ones, you might want to think about charitable gifts as well. But what should you know before making gifts to charities? And what impact might these gifts have on your financial and tax situation?
First, you may want to create a gift budget by deciding just how much you will give to charitable organizations over the rest of the year.
Next, look closely at the groups to whom you wish to contribute. You can find many reputable charities, but some others may be less worthy of your support. One of the red flags of a questionable organization is the amount of money it spends on administrative costs versus the amount that goes to its stated purpose. You can check on the spending patterns of charitable groups, and find other valuable information about them, on the well-regarded CharityNavigator.org.
Once you’ve established a gift budget and are comfortable with the groups you choose to support, you might turn your thoughts to another key issue connected with charitable giving: tax benefits. Changes in the tax laws resulted in an increase in the standard deduction, which meant that many taxpayers found it more favorable not to itemize. But if you still do itemize, your charitable gifts or contributions to those that qualify as 501(c)(3) organizations — can generally be deducted, up to 60% of your adjusted gross income, although lower limits may apply, depending on the nature of your gift and the organization to which you’re contributing.
Long-term avenues also exist that combine charitable giving with potential tax benefits.
One possibility is a donor-advised fund, which allows you to make an irrevocable charitable contribution and receive an immediate tax deduction. You can give cash, but if you donate appreciated assets, such as stocks, your tax deduction would be the fair market value of the assets, up to 30% of your adjusted gross income. Plus, you would not incur the capital gains tax that would otherwise be due upon the sale of these assets. Once you establish a donor-advised fund, you have the flexibility to make charitable gifts over time, and you can contribute to the fund as often as you like.
Another possible tax benefit from making charitable contributions could arrive when you start taking required minimum distributions, or RMDs, from some of your retirement accounts, such as your traditional IRA and 401(k). These RMDs could be sizable — and distributions are counted as taxable income. But by taking what’s called a qualified charitable distribution (QCD), you can move money from a traditional or Roth IRA to a qualified charitable organization, possibly satisfying your RMD, which then may be excluded from your taxable income.
Establishing a donor-advised fund and making qualified charitable distributions are significant moves, so consult with your tax advisor first. But if they’re appropriate for your situation, they may help you expand your ability to support the charitable groups whose work you admire.
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