Donating to a worthy charity is beneficial for the community; it can also have tax benefits.
Do you have stocks or mutual funds that have risen in value over the years? You would like to trim some of the investment but you don’t want to incur capital gains tax or the net investment tax.
If you are desiring to make a charitable contribution, consider donating appreciated investments. If you have held the investment for over one year, you receive the Fair Market Value on the date of the transfer. The charity receives more contribution than if you sold the stock, paid the tax and donated the net proceeds.
Generally, donations are deductible up to 50% of the Adjusted Gross Income (AGI). However, donations of appreciated capital property are limited to 30% of your AGI. If you discover you have made donations that exceed your contribution limits you can carry the deduction forward up to five years.
If it’s a losing stock you want to get rid of, you are better to sell the stock first. Then make a cash donation to charity. You will get a charitable deduction if you itemize. You will also be able to take a capital loss when you sell the investment.
When deciding to contribute appreciated investments, be sure your chosen charity can receive the investment. Large organized charities usually have staff that are prepared to assist with this transfer. The transfer can take a week or more to complete. Be sure you give lead time to secure your tax deduction by the end of the year.
In 2015, Congress made permanent another tax advantage form of giving. If you are 70 ½, you can contribute up to $100,000 directly to a charity from an IRA tax free. You do not receive a deduction for the donation. But you do not include the disbursement that went to charity in your income. This will reduce your Adjusted Gross Income and could reduce the amount of social security benefits that are taxable. A lower AGI may also allow more of your itemized deductions to reduce your taxable income.
These are a few tax savvy ways to make contributions to charitable organizations. Be equally savvy in choosing charities that will wisely steward your donations.