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Year-End Giving and Tax Planning Tips

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CBN Executive Director, Planned Giving

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New 2018 tax rules have changed how you should approach planned giving to maximize tax breaks for donations to 501(c)(3) public charities.

What exactly does 501(c)(3) mean? 501(c)(3) refers to the tax-exempt status of a nonprofit organization as a qualified pubic charity under IRS rules. Because 501(c)(3) organizations are charitable in nature, they can receive tax-deductible donations from donors.

When you make a cash donation to a public charity, you’re generally eligible for a tax deduction of up to 60% of your adjusted gross income. The higher your tax bracket, the greater your tax savings when making charitable gifts and taking the itemized deduction.

The most tax efficient way to give for senior donors, over the age of 70-1/2, is the Charitable IRA. It counts towards your RMD (Required Minimum Distribution) taken from your Traditional IRA and is reported as a QCD (Qualified Charitable Distribution) on the Federal 1040 form. It is an exclusion from taxable income, lowering AGI (Adjusted Gross Income) and potentially the tax on social security benefits along with lowering future Medicare premium surcharges.

Additionally, besides benefiting from the Charitable IRA, you can take advantage of the increased standard deduction. Specifically, in 2018, single taxpayers can receive a standard deduction of $12,000, plus an extra $1,600, if over the age of 65. For married taxpayers filling jointly, you can receive a standard deduction of $24,000, plus an extra $2,600, if over the age of 65.

You may want to consider "bunching" charitable donations or medical expenses in 2018, if it helps you to deduct more income. By accelerating charitable contributions and medical expenses from 2019 into 2018, it may result in your total of itemized deductions being greater than the standard deduction threshold. Stacking donations in this way may give you enough donations to itemize in 2018 and then take the standard deduction in 2019.

SET UP A DONOR-ADVISED FUND (Charitable Giving Fund)
There is an immediate tax deduction if you fund a DAF. Making two or three years’ worth of charitable contributions as a lump sum in 2018 could put you across the threshold to take an itemized deduction. A DAF is easy to set up and can be used for future giving. It can be a great way to offset taxes this year if you have high taxable earnings. Later, in 2019 or future years, you can make grant distributions from the DAF to your favorite charity. DAFs accept a wide range of financial assets to fund a Giving Account, from cash and checks to stocks, mutual funds, bitcoin and even non-publicly traded assets like real estate.

For appreciated stocks held for more than a year, itemizers can generally deduct Fair Market Value up to 30% of AGI and bypass capital gains tax.

Supplement retirement income and receive fixed payments for life. Rates are higher than CD’s or low earning money market investments. In addition, you receive a charitable itemized tax deduction immediately for the gift portion and the annual income payments to you are partially tax free.

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This tax information provided is general and educational in nature, and should not be construed as legal or tax advice.  CBN does not provide legal or tax advice.  Always consult an attorney or tax professional regarding your specific legal or tax situation related to your charitable planning.

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