Tax-Effective Ways to Make Charitable Donations


Today is Giving Tuesday, a day designated to promote donations to charitable organizations. Donating to charity is first and foremost an act of altruism. The tax code rewards such acts.

The tax code allows those who itemize to deduct donations to qualified charitable organizations. Receipts are required for all cash contributions. Contributions of $250 or more require a written acknowledgement from the charity, including a statement as to whether or not any goods or services were provided in exchange for the donation. A canceled check or receipt is required for cash donations. IRS Publication 526 discusses the rules for deducting charitable donations.

To deduct donations, you must itemize on your tax return. Depending the total amount of your eligible deductions, it can more sense to take the standard deduction instead.  The standard deduction is $6,300 for single filers and $12,600 for married couples filing joint returns. In 2017, the standard deduction will be $6,350 and $12,700, respectively. Deductions are phased out for single filers with adjusted gross income of $259,400 and married joint filers with AGI of $311,300 ($261,500 and $313,800 in 2017).

Those who are at least age 70-1/2 as of December 31, 2016, can make charitable donations directly from their IRA in lieu of taking a required minimum distribution (RMD) for the same dollar amount. The maximum annual limit for these qualified charitable distributions (QCDs) is $100,000. Since QCDs lower taxable income, they are a more tax effective way for retirees to donate than to withdraw funds from an IRA and then donate. The Tax Advantages of Qualified Charitable Distributions From IRAs, published in the October 2016 AAII Journal, explains why.

A charitable remainder trust can make sense for those who planning to make a large charitable gift. This type of trust allows you to receive income from the investments placed in the trust throughout the remainder of your life. At the time of your passing, the designated charity of your choice receives the proceeds of the trust’s assets. Similar types of trusts include testamentary charitable remainder trusts and charitable lead trusts. Such trusts can be useful for those with large, concentrated positions who wish to diversify their portfolios while also pursuing altruistic goals. See The Advantages of Charitable Trusts in the October 2013 AAII Journal for more information.

Our 2016 guide to tax planning contains updated information about 2016 and 2017 tax rates, exemptions and deductions. The guide will be available on later this week as part of the December AAII Journal.

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