When you give to charity, everyone wins

Changes in income tax laws have reduced charitable giving. Most of us will not itemize deductions on our federal tax returns this year and therefore will not receive a federal tax benefit for our charitable contributions. Because of this it is projected that charitable giving will be down 4.6%.

It is important to continue to give to charities. Your donations make a difference in the lives of others and the community that you live in. Charitable giving increases your sense of gratitude and wellbeing. By knowing the best tax strategies and utilizing tax advantaged approaches, donors can maximize the benefit to the charity without increasing their cost. Smarter giving benefits all of us.

There are several ways that you can increase the tax benefits of charitable giving. For those donors over the age of 70 1⁄2, who have traditional IRA accounts, a Qualified Charitable Distribution (QCD) is a very good strategy. You contribute directly from your traditional IRA which qualifies for your required minimum distribution and you are not taxed on the withdrawal from your IRA. In effect, you are allowed a deduction for the charitable contribution without having to itemize your deductions.

Another good way to make a charitable contribution is to contribute property that has increased in value. This property could be real estate or shares of stock. The donor receives a deduction (within certain limits) for the full fair market value of the property without having to recognize the gain that would be taxable if the property were to be sold. Also, Donor Advised Funds (DAF) are becoming more popular. You can set-up an irrevocable charitable trust; donate to the fund; receive a current deduction on your tax return and choose to disburse the funds to a charity of your choice in future years. This works well where you could use a large deduction this year, but you want to spread out your charitable giving over several years. By making a large donation to your DAF in the first year, you could exceed the standard deduction and therefore receive a tax benefit that you would not receive if you made direct donations over several years.

There are a host of other strategies that work well in specific situations. A charitable gift annuity, a charitable remainder trust or a charitable lead trust may be a better fit in your circumstances. You can see that there are many ways to maneuver through the minefields of taxes and charitable giving. Oregon has lower standard deduction limits so many individuals will receive state tax benefits even though they may not receive federal tax benefits. Don’t let the new tax laws discourage you from giving to your favorite charities. Talk with your tax advisors to devise a giving plan that best fits your situation and remember, through charitable giving, we all win.