Charitable Giving and Tax Planning: Maximizing Benefits

Most taxpayers working with a knowledgeable CPA know that integrating charitable giving into your tax planning strategy can be a powerful way to minimize your tax bill while supporting causes you care about. There are several strategies to consider. Remember to keep accurate records to itemize your deductions and take full advantage of the tax benefits. The amount of tax savings will depend on your tax bracket and the deductibility of your contributions for state and local income taxes.

Impact of the 2017 Tax Cuts and Jobs Act

The TCJA raised the deduction limit for cash donations to public charities from 50% to 60% of an individual's adjusted gross income (AGI) for the tax years 2018 through 2025. This increase allows taxpayers to deduct a larger portion of their income when making substantial charitable contributions.

Charitable Considerations

Most taxpayers are familiar with typical cash gifts, and there are other opportunities to donate to organizations, but they need to be aware of the specific limitations and requirements.

Private Foundations and Special Organizations:

• Contributions to certain private foundations, such as veterans' organizations, fraternal societies, and cemetery organizations, are limited to 30% of adjusted gross income.

Long-Term Capital Gain Property:

• Special limitations apply to certain gifts of long-term capital gain property as they are subject to special limitations, so it's essential to consult your CPA before making them.

Qualified Charitable Distributions (QCDs):

• Taxpayers over 70½ are allowed an exclusion from gross income for IRA distributions made directly to a charitable organization, up to $100,000 per year ($100,000 for each spouse on a joint return). The charitable distribution will count toward satisfying a taxpayer's required minimum distributions from a traditional IRA.

Timing and Recordkeeping:

• You must make your cash or property donations before the close of the tax year to be deductible.
• It is crucial to keep appropriate records for every donation, regardless of size. Work with your CPA to ensure you have the information to take advantage of the tax deduction opportunities. Appraisals are required for large property gifts.
• Donations of clothing and household items must be in good used condition to be deductible.

Special Charitable Giving Techniques

Beyond the usual gifts of cash, consider these special charitable giving
techniques:

Bargain Sale to a Charity:

• This involves selling property to a charity at less than its fair market value. The difference between the sale price and the market value is considered a charitable contribution. For example, if a property is worth $500,000 and is sold to a charity for $300,000, the seller can claim the $200,000 difference as a charitable donation on their taxes. This can result in significant tax savings while also supporting the charitable organization.

Gift of a Remainder Interest in Your Residence:

• You can donate a remainder interest in your home or farm to a charity while retaining the right to live there for the rest of your life or a specified number of years. The ownership of your property would transfer to the charity at the time of your death. The charity can decide how to use or sell the property.

Charitable Gift Annuity:

• Transferring assets (cash or securities)to a charity in exchange for the charity's promise to pay you (or another beneficiary) a fixed income for the rest of your life. You receive an immediate income tax deduction for a portion of the transfer. The remaining assets belong to the charity to support its work.

You can employ multiple strategies to reduce your tax burden and support meaningful causes. Working with the Cambaliza McGee LLP team ensures you take full advantage of the current tax laws and strategies tailored to your specific financial situation and goals.