When professional baseball player Austin Barnes extended his range a necklace With the Los Angeles Dodgers for another two years, he specifically included in the agreement a commitment on his part to make charitable donations.
It was a generous move and financially smart at the same time. He can invest his money in helping causes he believes in, while also enjoying the tax benefits.
Most of us don’t have multi-million dollar professional sports contracts like Barnes, but there are ways to increase your donations, while at the same time reducing your tax bill.
After all, you likely have a cherished cause — a church, animal rescue organization, homeless shelter, or other nonprofit — that wants to help. With charitable donations, you get to choose exactly how your money is used, which is not the case with your tax dollars, which only go to the big Washington tax bowl.
Think of it this way: If you were told you wouldn’t be able to keep your $10,000 anyway, wouldn’t you rather have a say in exactly how you spend it?
With that in mind, here are five ways to make charitable giving an essential part of your financial plan:
1. Establishment of a Donor Directed Fund (DAF)
This is a strategy that is not often put into practice, in part because many people don’t know about it. Donor Advice Fund It allows you to make a large charitable donation that you can immediately claim as a tax deduction. However, the money was not immediately donated. Instead, it’s put into an account, which you can then distribute in small portions over several years to the nonprofit of your choice. organisation Sponsor and manage the accountbut you decide how and when to donate the money.
How can you benefit from the donor fund? For example, let’s say you own a stock with a massive cost basis problem. You can donate this to a donor’s fund, which allows you to avoid paying capital gains tax as well as make your donations.
2. Donate the Minimum Required Distribution (RMD)
If you have retirement savings in a tax-deferred account, such as a traditional IRA or 401(k), Minimum Required Distributions (RMDs) It starts when you reach the age of 72. Basically, the government requires you to withdraw a certain percentage each year, so that you can collect income taxes on that withdrawal.
This presents another opportunity to maximize charitable giving. Suppose you don’t need the IRA money, and you plan on making a donation anyway. You can arrange for your risk management department to go directly to a charitable organization through a Qualified Charitable Distribution (QCD). You can donate up to $100,000 tax-free this way. Not only is this a tax saving, but by avoiding RMD, you can keep your income lower For medical care purposeshelping you avoid a potential increase in your insurance premiums.
3. Bring money to charity in your will
People often leave money to a charity after they die, but even that can be done strategically. If you leave a dollar amount to the charity, that money will come from a checking or savings account. Alternatively, it may be best to leave the IRA to the charity.
why is that? Suppose you also have children that you name in the will. If they inherit money from a checking or savings account, they do not pay any taxes on it. If they inherit the IRA, they will end up with taxes. But the charity does not owe any taxes either way. So leave the charitable IRA and allocate the other money among your heirs.
4. Establish trust
Another way to make charitable donations is to create charitable credit, which has many benefits. Here’s a couple: A charitable trust provides a deduction from your income taxes. Also, you can donate an asset to the fund that has increased in value and is subject to capital gains tax. However, once the asset belongs to the charitable trust, there is no capital gains tax due.
5. Inspire the next generation – or two
If you have charitable dispositions, you can transfer them to Your children and grandchildren. One way to do this is to give them a certain amount of money with the intent of donating it to a charity. They, of course, have to choose the charity. This is an excellent way to help them understand the concept of give and take that comes with doing so.
These are just a few ways to approach charitable giving that allows you to do good and save taxes, all in one. Making sure you do things the right way can get complicated. A financial professional can explain in more detail how these and other bidding strategies work and help you decide which bidding strategy is best for you.
Ronnie Blair contributed to this article.
Financial advisor, Semmax Financial Group
Join Matt Landon Semmax Financial Group As a consultant in 2017. He is a licensed insurance agent and has passed the Series 65 Securities Exam. Graduated from the University of North Carolina at Greensboro with a Bachelor of Science in Kinesiology. Matt is currently enrolled in North Carolina’s online CFP® Certification Education Program and is studying for the Certified Financial Planner™ certification.
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