Some Basic Charitable Giving Strategies

One of the best ways to reduce the bite of taxes while doing good is to donate to a worthwhile charity. In this article, we will review some of the basic ways to accomplish this.

First, just writing a check gets you an immediate deduction up to 50% of your adjusted gross income (AGI). If you are unable to use the entire deduction in the year of the gift, you may carry it forward for up to five years. Don’t forget to obtain an acknowledgement letter from the charity.

A great way to give while avoiding capital gains taxes is to give appreciated property such as stocks. Please note that you have a choice of valuing the gift at its adjusted basis or at its fair market value. The downside of choosing fair market value is that the deduction is limited to 30% of AGI (for basis, the deduction is up to 50% of AGI). For highly appreciated property, the fair market value election will usually make sense, especially since an unused deduction may be carried forward for up to five years.

One charitable-giving vehicle that we especially like is a donor-advised fund. Essentially, this functions like a standard investment account in that the donor contributes cash or appreciated securities, getting an immediate deduction, directs the investment of the funds, and recommends grants for specific charities. The growth in the assets is tax-free.

A relatively new way to give is a qualified charitable distribution from an IRA. This is especially relevant for someone who is taking required minimum distributions from an IRA. Note that the limit on this type of contribution is $100,000, and the payment must go directly to the charity.

Lastly, a charitable bequest made in a will is unlimited in the amount that is deductible from the gross estate. Thus, if someone wanted to pay zero estate taxes, he could leave his entire estate to charity. Needless to say, this may not go over very well with other family members who were expecting to have a windfall. In a future article, we will explore the different types of trusts that can be used to benefit a charity.