As you pause this Thanksgiving to express your gratitude for life’s blessings, it’s a great time to consider ways to give back to the world around you. From a financial standpoint, it’s also a terrific time to take advantage of charitable gifting strategies and make the most of your tax planning before 2017 draws to a close. Here are 3 things you may want to consider before the end-of-the-year:
- Give stock instead of cash. If you own a stock that has appreciated in value and would be taxable when sold, consider donating the stock (or a portion of it) directly to your charitable organization to potentially save on taxes. You may get a tax deduction based on the fair market value of the stock at the time of the gift and the charity can sell the stock without paying taxes. This can also help you diversify your investment portfolio. So, before you think about liquidating money from your investment portfolio to free-up cash that you’ll be giving on an after-tax basis, you may want to look closely at any gains you have and transfer the stock directly. The charitable organization will be able to give you instructions on how to make the transfer.
- Use your Required Minimum Distribution to your Advantage. If you’re 70½ years old and subject to mandatory withdrawals from your Traditional, Inherited, or Roth IRA, recent legislation now allows you to make tax-free distributions from your account directly to a qualified charity. How does this benefit you? As long as certain rules are followed, the direct transfer may allow you to save on taxes because the amount would be excluded from your gross income calculation. This tax-saving strategy can be especially helpful for people who are already giving or planning to give to a charity and for those who don’t itemize deductions on their income tax return.
- Make cash gifts before the end-of-the-year. Depending on your specific tax situation, charitable donations could provide a good source of income tax deductions. In order to deduct a charitable contribution, you must itemize your taxes. This is critical, especially since the IRS reports that only 30% of taxpayers choose to itemize deductions on their tax returns. It may be worth spending time identifying other deductible expenses to see if you can exceed the standard deduction that most Americans take. It’s also a good idea to make sure you research whether your charity of choice is a qualified tax-exempt organization.
These are just a few ideas that combine charitable gifting and tax planning strategies, but there are many more. Let me know if you’d like to have a conversation about how you can include giving in your financial plan.
Happy Thanksgiving from The Leonard Family to yours!
*This post originally appeared in the November issue of Hills & Castles magazine.