It's simple to help those in need; select a cause you believe in and send money their way, right? Wait a minute. It may seem obvious to contribute using a credit card, but considering that 90% of U.S. family wealth is housed in non-monetary assets, you may be giving away the wrong things if you stick to cash.
Donating the correct support to charity might result in significant tax savings. Moreover, many organizations are open to cryptocurrency and donor stock gifts. Here are some things to consider when you weigh your donation options:
Appreciated Assets: Tax-Advantaged Charitable Contributions
You and the charity you support could benefit from a gift of appreciated assets you've held for at least a year. It is typical practice to reduce taxable gains by donating increased-value assets. Imagine you care deeply about a cause and wish to donate $10,000.
You own certain stocks that have doubled in value over the past few years but no longer yield the same returns as the rest of your portfolio. Selling $10,000 worth of increased-value equities might result in a capital gains tax bill of $1,500 to $2,000. The final profit from the transaction would be $9,000.
You may maximize the impact of your $10,000 gift to charity by donating shares of stock directly to the organization. In addition, you get to keep the $10,000 tax break and pay no capital gains tax. Donations of stocks, bonds, and even cryptocurrencies may sometimes be sent directly to large charities.
Donating these items to a donor-advised fund is another option. Donations are fully tax-deductible in the year they are made but can be paid out in installments if desired. Consider using a donor-advised fund to maximize the tax benefits of a real estate donation to charity.
This technique can help you avoid paying capital gains taxes while saving you the trouble of selling the property independently. DAFs often can liquidate real estate (assuming it is worth more now than you paid for it).
Retirement Assets: Tax Deductible Charitable Donations
Those still in the workforce should think twice before distributing their retirement savings. Imagine, though, that you are already enjoying retirement and have so many other sources of income that you don't need the money you are obligated to withdraw annually from your retirement funds.
Charitable contributions made instead of RMDs may provide you with tax benefits. If you are above 70 1/2, you can avoid paying income tax on your required minimum distribution (RMD) by making a qualified charitable donation (QCD) from your IRA. Distributions from an IRA must be rolled over from a 401(k).
Donating your retirement funds to a good cause after death is another option. You may utilize the money from your annual payouts as you choose while you're alive, and your heirs and estate will pay less in taxes due to this estate planning method.
Tax-Advantaged Charitable Contributions: Cash
You'd rather make monetary donations to charity than part with any appreciated possessions. Donating cash is simple and quick, but it seldom results in additional tax benefits beyond the standard tax write-off for charitable giving.
Nonetheless, making a monetary donation might be advantageous from a tax perspective. For the sake of argument, let's imagine that you have certain capital assets that have depreciated in value. The best way to eliminate them is to give them to a good cause.
It may be more prudent to sell the assets at a loss and provide the earnings than to make a direct contribution. Then you may use tax loss harvesting to reduce your capital gains tax bill for the year by the amount of the loss.
What Assets Are Best For Charitable Contributions?
The answer to this issue is unique to each individual's circumstances, including their wealth, priorities, tax situation, and overall financial strategy. In other words, no "optimal" way to contribute to charity exists, even if donating valued assets is typically the most tax-efficient option. It is entirely up to you to decide which causes you to choose to fund. Talk to your financial planner if you need help figuring out how to make those gifts possible.
Conclusion
When it comes time to donate, most individuals automatically go for their checkbooks or credit cards. Alternatively, think about contributing non-cash assets, which are typically neglected but can have a greater impact on you and your chosen organization. Donating non-cash assets using a contemporary donor solution like The Giving Block is possible.
