Can Americans still reduce their tax burden through charitable giving? For many, this option has become more difficult in recent years thanks to changes in federal tax laws, particularly the dramatic increase in the standard deduction that reduced the number of Americans who can itemize their deductions.
Fortunately, legal and tax professionals can still help taxpayers reduce their tax bill using creative giving strategies like donating appreciated stock, bunching donations, and qualified charitable distributions.
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The Fort Scott Area Community Foundation (FSACF) is an affiliate of the Community Foundation of Southeast Kansas, a 501(c)(3) public charity. As a result, when someone donates stock to FSACF, he or she can deduct the fair-market value of the donated stock and avoid recognizing any built-in gain. These facts enable a strategy that may be particularly appealing to your clients: They can donate appreciated stock instead of cash, then use the cash that would have been donated to purchase replacement stock with a higher basis, reducing the amount of unrealized gains in their portfolio.
“Bunching” donations means combining multiple years’ giving into a single year. By combining bunching with a donor-advised fund, a donor can claim a tax deduction in the year of the donation and remain involved in distributing the funds to nonprofit organizations in subsequent years. But it also makes sense for donations to other types of funds.
Qualified charitable distributions
Individuals who have to take a required minimum distribution (RMD) from a tax-deferred IRA can offset the taxable amount of the RMD up to $100,000 by making a non-taxable qualified charitable distribution. This strategy is helpful because it involves excluding what would otherwise be taxable income, rather than merely qualifying for a charitable deduction. This benefit is not available for distributions to a donor-advised fund, but it is available for donations to other types of funds.
If you have a client who could benefit from one of the above giving strategies, or if you know of another strategy you’d like to discuss with us, please contact us! We’re always available to discuss your clients’ charitable-giving needs.