Banking & Finance, Government, and Nonprofits

Maximizing tax deductions in your charitable giving

June 30, 2015
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Grand Rapids is known for philanthropy and giving back to the community.

People tend to give financial resources to a charitable organization because that organization means something to them and they believe in its mission. As you are planning your charitable giving for the year, here are a few ways that you can give your gift while making sure that you maximize the added benefit of your tax deduction.

The most common way that people give to organizations is by writing a check or by giving a gift of cash. You are not permitted to claim a charitable contribution unless you receive a letter of acknowledgment for the donation. However, for checks written for less than $250, you do not need a letter. In that case, you simply need to retain a copy of the cancelled check to substantiate the tax deduction.

One way to give a gift to an organization and save tax at the same time is to give a gift of publicly traded appreciated stock from your personal portfolio. In addition to receiving a deduction on your tax return for the fair market value of the securities, you also do not have to pay capital gains tax on the disposal of the securities.

If you are planning on making a larger gift to a charitable organization, you may want to consider giving a charitable gift annuity. You donate a lump sum to a charity and receive a partial charitable deduction for your gift. In return, the charitable organization will pay you a fixed income payment for life. A portion of this payment is nontaxable. Charitable gift annuities offer flexibility in how they can be structured. Another way is to give a gift and defer the annuity payment until retirement age.

Your IRA is also a great tool in charitable giving. For example, you can name a charitable organization as a beneficiary of your IRA and still have access to the account while you are living. Upon death, the value of the IRA passes to the charity, creating a lasting legacy. You are not permitted to deduct this amount on your tax return; however, it reduces the value of your gross estate.

You are generally required to begin taking “required minimum distributions” from your traditional IRA once you reach age 70.5. For high-net-worth individuals, RMDs are more of a burden because they may not want or need the cash and it is ordinary income taxed at their marginal rate. In recent years, in lieu of receiving that amount in cash, taxpayers were permitted to take up to $100,000 of their RMD from their IRA and send it directly to a charitable organization. Although taxpayers did not receive a charitable deduction, they also did not need to include that amount into their gross income. This provision expired at the end of 2014; however, there is talk of making this a permanent law.

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