For individuals with charitable intent, there are many ways to satisfy a bequest, but which strategy maximizes the tax benefit of the donation? This depends largely on each individual’s circumstances and tax obligation. In this article, we will review three strategies for making charitable donations: donating cash (or writing a check), making a qualified charitable distribution from an IRA, or donating appreciated stock.

Donating Cash

By donating cash or writing a check to a qualified charity or organization, you may be entitled to a charitable contribution deduction if you itemize deductions on your tax return. The IRS website states, “you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limits apply in come cases.” So, depending on your adjusted gross income and charitable contribution in a given year, you may not be able to deduct the full contribution amount.

Making a Qualified Charitable Distribution (QCD) from an IRA  

Beginning the calendar year in which you turn 70 ½, you are required to start taking minimum distributions from your IRA. Rather than distributing the funds and reporting them as ordinary income on your tax return, individuals can make a qualified charitable distribution directly from an IRA to a charity without any tax consequences. This strategy is an efficient way for individuals with charitable intent to offset the tax burden of a required minimum distribution dollar for dollar because the funds donated are not included in the taxpayer’s adjusted gross income. Beyond satisfying a required minimum distribution, individuals can make QCD’s of up to $100,000 from an IRA to a charity each year, which can be more beneficial than donating cash due to the 50% of adjusted gross income limits on charitable deductions.

Donating Appreciated Stock

Similar to donating cash, individuals are eligible to take a charitable deduction when filing their tax return for donating an appreciated stock. The amount that can be deducted is the fair market value of the stock (or other investment). This is beneficial when the stock has been held for at least 12 months and has greatly appreciated in value because the taxpayer is not required to recognize the capital gain on the investment. Therefore, the taxpayer benefits from both the charitable deduction as well as avoiding any future capital gains tax liability that otherwise would be due in the future.

To speak with a CERTIFIED FINANCIAL PLANNER™ professional about how to maximize the tax benefits of a charitable contribution specific to your personal situation and charitable intent, call Sharkey, Howes & Javer at 303-639-5100 or send us a message to set up a complimentary initial consultation.


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