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As we come to the end of the year, it is time to consider opportunities for last-minute giving to help the ministries, nonprofits and places of worship about which we are passionate. These opportunities also enable donors to receive tax benefits they would not otherwise get. Remember, in order to claim a deduction for 2018, the gift must be made prior to December 31, 2018. Even if you use a credit card for the gift, and don’t actually pay for it until 2018, the gift is still deductible. Checks are also deductible, as long as they are given or mailed to the charity before year end. Here are three tips to consider, as you finish up your giving goals for the year.
Gifts of Cash
A gift of cash (or its equivalent, like a check) is always welcome by the charities and churches you support. Cash is simple and will allow you to take a charitable tax deduction for the contribution up to 60% of your Adjusted Gross Income. If you give more than you can deduct, this year, the remainder of the gift can be used on your tax returns for up to five additional years.
Gifts of Appreciated Assets
Donating appreciated property may give you and the nonprofit the biggest advantage. Such a gift could include stock, mutual fund shares and real estate. Donating appreciated assets allows a donor to receive a deduction equal to 30% of Adjusted Gross Income (AGI), providing the assets have been held for more than one year. So, why is such a donation often the “biggest advantage?” Let’s look at a hypothetical example:
Two years ago, you purchase a share of stock from XYZ, Inc. for $200. The stock of XYZ has increased in value to $1,000, today. If you sold this stock, on the market, you would be exposed to tax on the $800 of capital gain in the stock ($1,000 Stock Value – $200 Cost Basis of Stock = $800 gain in value subject to capital gains tax).
Rather than selling the stock and paying capital gains, you can give this stock to your favorite charity or church, get the deduction mentioned, above, AND avoid capital gains on the entire transaction. Here’s a quick look at the benefits of donating appreciated property:
IRA Charitable Distributions
Required minimum distributions, or RMDs, are the distribution of money the government requires a person 70-1/2 to withdraw each year from their IRA or 401(k). These distributions are 100% taxable and can create additional tax on your Social Security benefits, even if you would give the money away after you receive it. But the good news is that these RMDs also present an opportunity through Qualified Charitable Distributions (QCDs). You can take advantage of a provision in the tax code and redirect your RMD to a charity directly, skipping the taxes! Contact Ambassador Advisors today to learn about QCDs and how to set them up.
A new strategy with a strange-sounding name may be a great giving opportunity thanks to the new higher standard tax deduction in place for 2018. Donor Advised Funds (DAF) allow individuals to control the timing of deductible contributions and distributions to charitable organizations independently. Contributions to DAFs are deductible in the year the contribution is made. Distributions can be made at any time in the future to a charitable organization. Funds grow tax-free while they remain in the DAF. For example, a taxpayer can clump three or more years of charitable contributions into the DAF in one year so they could use the contribution as an itemized deduction. Then, in subsequent years, the taxpayer makes distributions to charitable organizations (from the DAF) while using the standard deduction.
If you have any questions regarding these or other ideas, please call Ambassador Advisors.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.