As year-end quickly approaches, you may be looking for ways to save on your 2017 tax bill. Giving to charitable causes is one of the easiest methods for successfully lessening your tax burden. Although charities always appreciate cash gifts, there are other non-cash ways to generate a charitable income tax deduction. These non-cash giving ideas may not be as easy as writing a check, but they are certainly worth considering for tax benefits they may provide.
Qualified charitable distribution (QCD)
Transferring the required minimum distribution from your IRA directly to a charity is an ideal strategy if you are reaching the thresholds for either the Net Investment Income Tax or the phase-out for itemized deductions. The charitable amount is not included in your income or as an itemized deduction. If you are age 70 1/2 or older, you can contribute up to $100,000 from an IRA to a charitable organization. Note that the contribution must be transferred directly to that charity.
The transfer of appreciated stock with low basis to a charity is another excellent tax strategy — the idea being that the unrealized capital gain is transferred to the charity. The charitable organization can then sell the stock and will not have to pay capital gain taxes. As an individual, if you sell appreciated stock with a low basis, you will pay capital gains taxes on the difference in sales price and basis. If the stock is publicly traded, there is no outside appraisal necessary for this type of donation.
Donating appreciated real estate to a charitable organization can also be advantageous. Much like contributing appreciated securities, the gain from the sale of the appreciated real estate will be borne by the charitable organization rather than by you. In order to deduct the value of appreciated real estate, you must obtain a qualified appraisal to substantiate the deduction. The appraiser must also sign an attachment to be included with your tax return.
Charitable remainder trusts
This option is favorable if you are charitably minded but still need to have an income stream from your assets. Creating a charitable remainder trust will generate a current income tax deduction as well as a future income stream. Establishing a charitable remainder trust requires an attorney to create the trust and tax returns for the trust. These types of trusts are usually funded with appreciated securities. The charitable income tax deduction is based on the present value of the remainder interest that will pass to the charity.
Charitable lead trusts
Charitable lead trusts are an option if you need a large income tax deduction in the current year but will not need the trust’s income stream for a number of years. The charitable lead trust provides that the annuity payment goes to the charity and the remainder to the grantor or another named remainder individual. The charitable deduction is based on the present value of the future income stream to be received by the charity.
These examples are just a few non-cash charitable contribution ideas. Non-cash charitable contributions have different AGI limitations. If you are philanthropic and have an appreciated asset in your portfolio, you should discuss charitable giving strategies with your tax advisor. Don’t hesitate to contact us if you have any questions. For specific tips on deducting your charitable contributions see the following article: Tips on deducting charitable contributions.