Giving back provides many benefits, whether in life or at death. The article explores ways of giving back and some of the tax benefits available, both during life and at death. The article provides a couple strategies to maximize the tax benefits, such as grouping deductions and doing a charitable IRA rollover.
Courtesy of Hall & Wylkan, Certified Elder Law Attorneys
By: Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
here are many ways to give back. Some give back through donations of cash or property. Other people give back by donating their time or expertise. Some people do both.
When you give cash to a public charity, for example, you can deduct your contribution up to 60% of your adjusted gross income. For example, Mary Smith had an adjusted gross income of $100,000. She made a contribution of $60,000 to her alma mater. This resulted in Mary being taxed on $40,000 instead of $100,000, which cut her tax bill dramatically. If you give more than you are allowed to deduct currently, you could carry it over for up to five years.
However, if you don’t itemize your deductions, you may not benefit from your charitable contribution. The standard deduction in 2018 is $12,000 for individuals and $24,000 for a married couple filing a joint return. In other words, whether or not you have deductions, you can take the standard deduction amount. If Mary in the above example were unmarried, she would only benefit taxwise from her charitable contribution once it and all other deductions for which she was eligible exceeded $12,000. For this reason, it may make sense for some people to group their charitable and other deductions into one year, to the extent possible.
For example, let’s say you have deductions of $5,000 each year in other deductions, such as property taxes. Let’s say you make a charitable contribution of $7,000 per year. You would get no tax benefit from the charitable contribution since your combined deductions don’t exceed the standard deduction of $12,000. However, if you gave the $7,000 from year 1 and the $7,000 from year 2 in the same year, you’d have charitable contributions of $14,000, plus the $5,000 in other deductions for a total of $19,000. You’d have far more than the standard deduction amount and you would receive a tax benefit.
If you are over age 70 ½, you can contribute up to $100,000 from your IRA directly to a charity. This so-called “Charitable IRA Rollover” is a simple way to benefit from a charitable contribution, without ever having to take that IRA distribution into income and being taxed on it.
In order to learn more about the tax benefits of contributing to charity, look here.
If you contribute your time or expertise to charity, you don’t get a charitable deduction but you get the benefit of seeing first-hand how your labor is helping others. This could be as simple as serving food at a food pantry or helping build a home for Habitat for Humanity.
At your death, you can leave a legacy through your charitable giving. You can give as much as you want to charity and it would reduce your taxable estate for every dollar you gave to a qualifying charity. This could be a significant tax benefit if you have an estate above the exclusion amount. (While the federal amount is $11.18 million in 2018, in some states it is as low as $1 million, plus there could be a state inheritance tax depending upon the relationship of the person to whom you are leaving assets.)
Whether you can give of your time or your money or other property, there are benefits, both tax and otherwise, to doing so. If you want to give of your time or money, but don’t know where to start, explore Charity Navigator. Charity Navigator analyzes charities to ensure that you will get the maximum results for your dollars or efforts.