In the aftermath of Hurricane Harvey and its devastation of the Texas Gulf Coast, there has been an outpouring of giving and support to aid in recovery efforts. Indeed, there are endless opportunities to make a difference in our ravaged – yet resolutely strong – communities. One way to advocate for your cause is to make a charitable gift. However, not all gifts are equal. While your motivation to give may be entirely altruistic, here are five ways you can make charitable gifts and gain tax-saving benefits:
- Make Gifts to Nonprofit Tax-Exempt Organizations. You may be entitled to an income tax deduction for donations made to an organization that is exempt from taxation under Internal Revenue Code § 501(c)(3). While you can freely make gifts to any organization or cause, you cannot take a charitable deduction for a donation to an organization that is not tax-exempt. Additionally, if you receive something of value in return for your donation, such as a meal at a gala or an auction item, you can deduct only the amount that exceeds the fair market value of the benefit you received.
- Consider Gifting Appreciated Assets. Instead of selling an asset to make a cash donation, consider making an in-kind donation, especially if the property has increased in value since you acquired it. By giving an appreciated asset to a tax-exempt organization, not only will the charitable deduction help to reduce your taxable income, you may also avoid paying capital gains on the appreciation.
- Consider How You Gift Real Estate. If you would like to donate your property but are not ready to stop using it, consider giving an irrevocable remainder interest. By giving a remainder interest, the charity is assured that it will someday receive the benefit of the gift, but allows you to continue to enjoy the property for now. A gift of a remainder interest may qualify for a charitable income tax deduction and may reduce estate taxes.
- IRA Charitable Rollover. If you are 70 ½ or older, you are required to make annual distributions – referred to as required minimum distributions – from your individual retirement account (IRA). These distributions are subject to income taxation. However, certain donors can donate up to $100,000 from his or her IRA in any one year directly to eligible charities and shield the donation from being counted as taxable income. This is an effective way to make a difference and lower your income tax bill.
- Make a Gift of Life Insurance. While you can name a charitable organization as a beneficiary on a life insurance policy, there are several other methods for leveraging the gift of life insurance to reduce estate taxes upon your death and result in a charitable income tax deduction in the year you make the gift.
Regardless of your charitable motivations, giving strategically can mean immediate or future benefits for your cause and for yourself or your estate. If you are considering making a charitable gift, you should consult with the charity of your choice and your estate planning attorney prior to giving so that you can develop a plan that maximizes your impact.