TAX EFFICIENT CHARITABLE PLANNING

Tax-efficient charitable planning involves strategies that allow donors to maximize the impact of their charitable contributions while minimizing their tax liability. These techniques help donors achieve their philanthropic goals in a financially efficient manner.

Tax-efficient charitable giving can provide several benefits, including:

• Reducing your taxable income
• Lowering your capital gains tax
• Increasing the amount you can donate
• Enhancing your overall estate planning strategy

• Charitable Remainder Trusts (CRTs): A CRT allows you to donate assets to a trust, receive income for a specified period, and then donate the remainder to a charity. This can provide you with an immediate tax deduction and defer capital gains taxes.
• Charitable Lead Trusts (CLTs): A CLT provides income to a charity for a specified term, with the remainder going to your beneficiaries. This can reduce your taxable estate and potentially provide a gift or estate tax deduction.
• Donor-Advised Funds (DAFs): DAFs let you make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. This provides flexibility in managing your charitable giving.
• Qualified Charitable Distributions (QCDs): If you are 70½ or older, you can make a QCD from your IRA directly to a charity. This donation can satisfy your Required Minimum Distribution (RMD) and is not included in your taxable income.
• Gifts of Appreciated Securities: Donating appreciated stocks or other securities directly to a charity can help you avoid capital gains tax and receive a charitable deduction for the fair market value of the securities.

To maximize tax benefits, consider the following strategies:

• Bunching charitable contributions in a single year to exceed the standard deduction.
• Donating appreciated assets instead of cash
• Utilizing DAFs for flexible, long-term giving
• Incorporating charitable trusts into your estate plan
• Making QCDs if you are eligible.

Yes, there are caps on the charitable deduction limit set by the IRS. These limits vary based on the type of donation and the organization receiving the donation. Here are the key limits:

• Cash Donations:
  You can deduct cash donations up to 60% of your adjusted gross income (AGI) when donated to qualified public charities, including donor-advised funds.

• Donations of Appreciated Assets:
  Donations of long-term appreciated assets, such as stocks or real estate, are generally limited to 30% of your AGI. The deduction is typically based on the fair market value of the asset at the time of donation.

• Donations to Private Foundations:
  Cash donations to private foundations are limited to 30% of your AGI.
  Donations of appreciated assets to private foundations are limited to 20% of your AGI.

• Excess Contributions:
  If your charitable contributions exceed the applicable limits in a given year, you can carry forward the excess amount for up to five subsequent years. Each year, the same percentage limits apply to the total contributions deducted.

With a DAF, you contribute to the fund and receive an immediate tax deduction. The assets in the fund can grow tax-free, and you can recommend grants to your favorite charities over time. This allows for strategic, long-term charitable planning.

• CRTs provide income to the donor or another beneficiary for a specified period, with the remainder going to charity. This can offer an immediate tax deduction and defer capital gains tax.
• CLTs provide income to a charity for a specified period, with the remainder going to the donor’s beneficiaries. This can reduce the donor’s taxable estate and provide a gift or estate tax deduction.

Donating appreciated securities directly to a charity can offer significant tax advantages:

• • Avoiding capital gains tax on the appreciation
  • Receiving a charitable deduction for the full fair market value
  • Increasing the amount available for charitable giving compared to selling the securities and donating the cash proceeds

Yes, through Qualified Charitable Distributions (QCDs), individuals aged 70½ or older can donate up to $100,000 annually directly from their IRA to a qualified charity. This can satisfy RMD requirements and is excluded from taxable income.

When planning a charitable bequest, consider the following:

• Clearly identify the charity and specify the intended use of the gift.
• Decide whether to leave a fixed amount, a percentage of your estate, or specific assets.
• Consult with legal and financial advisors to ensure the bequest aligns with your overall estate plan and tax strategies.

Bunching contributions is a strategy where you combine several years’ worth of charitable donations into one year to exceed the standard deduction threshold. By doing so, you can itemize deductions in the year of the large contribution and take the standard deduction in other years, optimizing your tax benefits over time.

Donating real estate to charity can offer significant tax benefits, including:

• Avoiding capital gains tax on the appreciated value of the property
• Receiving a charitable deduction for the fair market value of the property
• Potentially removing a large asset from your taxable estate

Yes, you can donate a life insurance policy to a charity by:

• Naming the charity as the beneficiary of the policy
• Transferring ownership of the policy to the charity can provide you with a current tax deduction for the policy’s value and potentially remove the policy’s value from your taxable estate.

A charitable gift annuity is a contract between a donor and a charity where the donor makes a significant gift to the charity, and in return, the charity agrees to pay the donor (or another beneficiary) a fixed income for life. This provides the donor with an immediate tax deduction and a stream of income.

Incorporating charitable giving into your estate plan can reduce the size of your taxable estate, potentially lowering estate taxes. Charitable bequests, trusts, and other planned giving techniques can help ensure that more of your estate goes to the causes you care about rather than to taxes.

A private foundation is a charitable organization typically funded by a single individual, family, or corporation. It differs from other charitable vehicles in that it:

• Offers greater control over grantmaking and operations.
• Has stricter regulatory and reporting requirements.
• Requires a minimum annual distribution of 5% of its assets.
• Private foundations are suitable for those seeking long-term involvement in philanthropy and significant control over their charitable activities.

The right charitable planning technique depends on various factors, including:

• Your financial situation and goals
• The type and value of assets you wish to donate
• Your desired level of control and involvement
• Tax implications and benefits – Consult with financial, tax, and legal advisors to develop a strategy that aligns with your philanthropic objectives and financial circumstances.