The Benefits of Charitable Donations
The ancient Greek term "philanthropia," which
means "love of humankind" in English, is where the word
"philanthropy" comes from. Since the 16th century, modern charity has
been practiced and has continued to develop.
A search engine for analyzing organizations, Charity
Navigator, reports that philanthropic giving in the US reached a record high of
$410 billion in 2017.
This amount is greater than the GDP of several nations.
Since 1977, donations have risen every year with the exception of 1987, 2008, and 2009, which experienced dips.
The data speaks for itself. For both qualitative and
quantitative reasons, people donate to organizations and they do so year after
year.
Because of a personal connection: You donate to support
causes that are important to you. Consider making a donation to an animal
shelter if you care about animals.
Or perhaps you support a charity that assists someone with
this specific condition because a close friend of yours has health problems.
Let's imagine you're concerned about homelessness in your
neighborhood and want to generate community support. You donate money to a
brand-new affordable housing project and provide your time as a volunteer to
see it through.
Along the way, you'll run into people who share your beliefs
and you'll join the group of people who are striving for the same thing.
You may differ with your family on a lot of issues, but
perhaps you can come to an understanding on supporting a few causes.
Your family may become closer if you give through a family
fund each year. Through the same fund, you can create a lasting legacy for your
family.
For more happiness: A study by two psychologists from the
University of Chicago and Northwestern University examined whether people
experienced greater satisfaction when they gave money to others as opposed to
when they spent it on themselves. The research revealed that over time,
donating money increased happiness.
Even though you might not link taxes to giving, your charity
donations can ease your tax burden. Donations to charity organizations,
particularly those with a 501(c) tax-exempt filing status, are eligible for tax
benefits from the IRS.
You can give anything, including money, stocks, real estate,
works of art, clothes, books, and more. The IRS even allows you to deduct miles
driven for charity organizations (at a rate of 14 cents per mile) if you donate
your time.
Here are a few more advantages of giving:
1.
Reduce
your tax liability: If you itemize deductions on your tax return,
charitable contributions can assist you in reducing your taxable income by up
to 60% of your adjusted gross income (AGI) for donations to public charities
and up to 30% for donations to specific private foundations, veterans
organizations, fraternal societies, and cemetery organizations.
Any extra money given is carried over for a maximum of five
years before it expires. Whether you are donating cash, capital gains property
(usually investments held for longer than one year), or ordinary income
property, your AGI limit percentage varies depending on the type of asset.
2.
Decrease
the size of your taxable estate: If your estate is subject to estate tax,
giving assets can aid in doing so. For instance, the portion of your taxable
estate that exceeds the estate tax exemption threshold will be subject to the
highest estate tax rate, which is presently 40%.
For single filers and married couples filing jointly, the
federal estate tax exemption amounts for 2019 are now $11.4 million and $22.8
million, respectively.
3.
Reduce
capital gains taxes. Assume you received equity pay at a low stock price,
and since then, the price of the stock has increased.
You can think about donating these stocks if you wish to
save on further taxes and capital gains. You and the charity do not pay capital
gains tax on the stock when you donate it to qualifying charities.
Essentially, you end up giving the full worth of your stock
as a gift, which has a bigger impact than if you had sold your shares first and
then donated the proceeds to charity.
Learn more about maximizing your philanthropic donations by
utilizing your concentrated positions.
Strategies and Tools for Charitable Donations to Get You Started
Want to start but are unsure about where to begin? Here are
some concepts to think about:
• Decide on a gifting budget for the year. Consult your
financial or tax expert about the best equities to gift if your investment
portfolio contains highly appreciated, low-cost basis stocks. Additionally, you
might talk about how much to give annually based on your particular tax status.
• Include your family in your charitable contributions. You
can create a private foundation or a donor-advised fund if you're enthusiastic
about charity and want to instill those principles in your children and heirs.
Before choosing a giving plan, it may be worthwhile to
discuss the benefits and drawbacks of using a donor-advised fund or a private
foundation with your advisor.
1.
Private
foundation. Private foundations have a variety of legal and administrative
obligations, such as keeping meticulous records of your charitable work,
attending board meetings, giving or spending about 5% of the foundation's
average net investment assets from the previous year, and filing a separate tax
return by May 15.
Additionally, bear in mind that the foundation's financial
information is accessible to the general public, making this a less desirable
choice for families that like to keep their affairs private. A 1-2% excise tax
is also levied on the net investment income of the private foundation.
Before beginning a private foundation, make sure to discuss
the level of commitment necessary with your financial or tax professional.
2.
Funds on
advice from donors. Donor-advised funds, unlike private foundations,
require less upkeep because the fund custodian is in charge of recordkeeping.
You get a tax break the year you finance a donor-advised fund after you open
one.
Your finances can continue to grow for as long as you'd like
while also maximizing your donations because you can choose which charity to
support later on.
• Make a (QCD) or qualified charitable donation. If you have IRA assets and are retired, you must take the required minimum distributions from your account the year you turn 70 12 to avoid paying a 50% penalty on the un-distributed portion of your account balance.
With a QCD, you can donate up to $100,000 per year (and an
additional $100,000 to your spouse if you're married) to charities of your
choice while still meeting your necessary minimum distribution requirement
without increasing your taxable income.
• Give away your
valuables while utilizing revenue production. With charitable remainder
trusts, you are able to withdraw money every year for a predetermined period of
time. Any unallocated trust funds are donated to the charity of your choice.
Essentially the opposite, charitable lead trusts give the
remaining funds to your trust's beneficiaries while making annual payments to
charities.