The Smartest Ways to Use Tax-Efficient Charitable Giving

By Tom Nonmacher

Hello, thrift enthusiasts! Few things are as rewarding as helping others while also being savvy with our finances. One way to achieve this is through tax-efficient charitable giving. This not only allows you to support causes you care about, but also provides you with significant tax advantages. By navigating the charitable giving landscape smartly, you can make your donations go further and lower your tax bill at the same time.

Firstly, let's explore the concept of donating appreciated securities. Rather than selling your investments, paying capital gains tax, and then donating the proceeds, consider giving the securities directly to the charity. This approach allows you to claim the full current market value as a charitable deduction and bypass any potential capital gains tax. It's a win-win for you and the charity!

Secondly, if you're over 70½ years old, you might consider making a Qualified Charitable Distribution (QCD) from your Individual Retirement Account (IRA). This involves directly transferring funds from your IRA to a qualified charity, which can count towards your required minimum distributions (RMDs) for the year, and it won't be included in your taxable income. This approach can lower your income taxes and possibly help reduce Medicare premiums and taxes on Social Security benefits.

Another powerful tax-efficient strategy is to donate using a Donor-Advised Fund (DAF). When you contribute cash, securities, or other assets to a DAF, you're eligible to take an immediate tax deduction. Then, you can recommend grants from the fund over time to your favourite charities. It's a great way to centralize and simplify your giving, while reaping the maximum tax benefits.

Lastly, don't forget about the power of estate planning. By leaving a legacy through a bequest in your will or living trust, or by naming a charity as a beneficiary of your retirement account or life insurance policy, you can make a significant impact on a cause you care about while reducing the estate tax your heirs may have to pay.

In conclusion, charitable giving is not just about making a difference in the lives of others. When done smartly, it can also be a valuable tool in your tax and financial planning arsenal. Remember, it's always advisable to consult with a tax professional or financial advisor to ensure these strategies align with your overall financial goals and situation. Here's to savvy, meaningful giving!

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