Planned giving is not just a way to support NARSOL’s Foundation- it can also be a powerful tool to reduce your tax liabilities, both now and for your heirs. Here’s an overview of the most effective giving vehicles that offer significant tax advantages.
Charitable Gifts of Cash or Assets
- How it works: When you make a donation of cash or other assets to a qualified charity, you can claim an income tax deduction for the value of your gift. This deduction can reduce your overall tax bill, effectively lowering the out-of-pocket cost of your charitable contribution14.
- Example: If you donate $10,000 and are in the 28% tax bracket, you could save $2,800 in taxes, making the net cost of your gift $7,200.
- Tip: You must itemize deductions to claim this benefit.
Gifts of Appreciated Securities and Real Estate
- How it works: Donating appreciated assets like publicly traded stocks or real estate allows you to claim an income tax deduction for the full market value of the asset-and you avoid paying capital gains tax on the appreciation.
- Benefit: This “buy low, give high” strategy means your gift costs you less, and the charity receives the full value.
- Tip: This option works best with assets held for more than one year.
Charitable IRA Rollover (Qualified Charitable Distribution)
- How it works: If you are 70½ or older, you can transfer up to $100,000 per year directly from your IRA to a qualified charity. This distribution counts toward your required minimum distribution but is excluded from your taxable income1.
- Benefit: Reduces your taxable income without increasing your adjusted gross income, which can have additional tax advantages.
- Tip: No charitable deduction is allowed, but the exclusion from income often results in greater tax savings.
Vehicle Donations
- How it works: Donating a car or other vehicle can provide a charitable deduction based on the vehicle’s fair market value, especially if the charity uses the car or awards it directly to someone in need.
- Benefit: If the charity sells the car, your deduction is limited to the sale price; if the charity uses the car, you may deduct the fair market value.
- Tip: Proper documentation is essential to claim this deduction. NARSOL’s Foundation is likely to use a third-party service to process this kind of gift.
Charitable Remainder Trusts (CRTs)
- How it works: A CRT lets you donate assets to a trust, receive an immediate charitable deduction, and receive income from the trust for a set period or for life. The remaining assets go to the charity after the trust term ends.
- Tax Benefits:
- Immediate income tax deduction for a portion of your gift.
- Avoidance of capital gains tax on appreciated assets placed in the trust.
- Trust assets are removed from your taxable estate, reducing estate taxes for your heirs.
Bequests and Estate Gifts
- How it works: Leaving a bequest to NARSOL’s Foundation in your will or trust allows your estate to deduct the value of the gift, reducing federal estate taxes.
- Benefit: Especially advantageous for estates above the federal exemption threshold, as charitable bequests directly reduce the taxable estate.
Donor-Advised Funds (DAFs)
- How it works: You make a charitable contribution to a DAF, receive an immediate tax deduction, and recommend grants to charities over time.
- Benefit: If your charitable giving in a single year exceeds 60% of your adjusted gross income (or 30% for appreciated assets), you can carry forward unused deductions for up to five years.
- Tip: DAFs are a flexible way to “bunch” several years’ worth of giving into one tax year for maximum deduction.
Summary Table: Tax-Reducing Planned Giving Vehicles
| Giving Vehicle | Tax Benefit Type | Key Advantages |
|---|---|---|
| Cash/Asset Gifts | Income tax deduction | Immediate tax savings |
| Appreciated Securities/RE | Income & capital gains tax | Full value deduction, avoid capital gains |
| Charitable IRA Rollover | Income exclusion | Reduces taxable income, fulfills RMD |
| Vehicle Donation | Income tax deduction | Deduct FMV or sale price, avoid sale hassle |
| Charitable Remainder Trust | Income, capital gains, estate | Deduction, income stream, estate tax reduction |
| Bequest/Estate Gift | Estate tax deduction | Reduces heirs’ estate tax liability |
| Donor-Advised Fund | Income tax deduction | Immediate deduction, flexible grantmaking |
Planned giving can be tailored to your financial and philanthropic goals. Whether you want to reduce your current tax bill, avoid capital gains, or minimize estate taxes for your heirs, there’s a giving vehicle that fits your needs. Consult your tax advisor to determine the best strategy for your situation and maximize both your impact and your tax savings