If you have the means to give charitably, your good deed can pay you back with special tax incentives. Donations can result in a tax deduction, help you avoid capital gains taxes, and minimize estate taxes after your death.
Many Ways to Give…
You can make charitable donations through a variety of methods. Here’s an overview of how they work:
1) Making outright gifts
An outright gift will benefit the charity immediately and exclusively — and you’ll get an immediate income and gift tax deduction. To take advantage of this, make sure it’s a qualified charity according to the IRS, and get a receipt when possible.
2) Wills, trusts, and beneficiary designations
Gifts through wills and beneficiary designations are made at your death, through specific provisions — and your estate can take income and estate tax deductions. Meanwhile, charitable trusts can be handled in a variety of ways, including:
Charitable lead trust
A charitable lead trust pays income to a charity for a certain period of years, and then the trust principal passes back to you, your family members, or other heirs.
Charitable remainder trust
In this trust, income is payable to you, your family members, or other heirs for a period of years — and then the principal goes to your favorite charity. This helps you maintain a stream of income.
3) Private family foundation
This is a legal entity that can remain in place for generations after your death. You create the foundation, then transfer assets to the foundation, which makes grants to public charities. This is a more complex arrangement, and should be used to accommodate substantial capital.
4) Community foundation
This is a great way to let your money help a particular community. This entity can take donations from many sources — and the foundation is usually overseen by people in the community who have a clear understanding of what the spending priorities are.
5) Donor-advised fund
Similar to a private foundation, this type of fund makes it easier to give a significant gift charity over a long period of time. This account is held by a charitable organization — and when you give money to it, you can offer a suggestion on how your contribution could be distributed to other charities. Ultimately, though, representatives of the organization make the final decision.
Working on your charitable giving plan?
If you need help understanding the variety of ways to make charitable gifts — or advice on the best choices for your personal situation — contact us at 888-873-2640 today! Horizon Bank financial advisors will be happy to help, with Sensible Advice you can trust.