Charitable Donation Wealth Benefits
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If a non-profit organization supports a cause you strongly believe in, making financial contributions can be highly satisfying. And if you own a business, charitable donations may have a more significant impact, such as enhancing employee morale and solidifying your reputation in the community.
Altruism is often the main reason people give to charity, but this does not mean they cannot reap the benefits of their generosity. Indeed, making charitable donations may be advantageous for multiple areas of wealth management. Learn the many ways that these contributions can be helpful for wealth planning.
Lowering Incomes Taxes
Donations may be essential to your tax reduction planning strategy. The Internal Revenue Service (IRS) allows taxpayers to deduct charitable contributions from their taxable income, which may decrease their tax burden at the end of the year. To subtract your donations, you must itemize deductions using the Schedule A (Form 1040) document.
Only contributions to eligible charities may receive tax deductions — gifts to individuals do not qualify. The IRS offers a search tool to help you verify that the organization you donated to meets all requirements to obtain an income tax deduction.
If you are unable to make a monetary contribution, consider donating items to the charity, such as clothing, furniture, artwork, and vehicles. The IRS permits taxpayers to deduct the fair market value of any property given to qualifying organizations. On the other hand, if the charity provides you with products, services, or other favors in exchange for the donation, you must subtract the fair market value of this gift from the fair market value of the property you donated to determine the proper deduction amount.
Ultimately, making charitable contributions may result in considerable tax savings, particularly for those whose income places them in a higher bracket.
Minimizing Estate Taxes
If you frequently make substantial donations, you may consider starting a private foundation that makes charitable contributions. Private foundations are tax-exempt charities backed and managed by individuals or families. People establish these foundations as trusts or non-governmental organizations (NGOs).
Besides reducing your annual income tax burden, they may lessen your estate taxes. In some cases, they could remove estate taxes completely. Other benefits of setting up a private foundation include:
Saving on Operational Costs
You are entitled to use the funds to pay for qualifying expenses to run the foundation, such as travel or transportation. Similarly, the money can go towards a payment for services that family members, trustees, and employees provide to the foundation under normal conditions.
Maintaining Ownership of Foundation
With a private foundation, you can deduct contributions and still have control over the investment. What’s more, the investment income that trustees hold does not incur taxes.
Increased control over the foundation also enables you to donate regularly. Since the foundation may amass a percentage of its funds under ordinary circumstances, you have the option of retaining them or allocating them as you see fit.
Bypassing the Capital Gains Tax
You may be able to avoid the capital gains tax depending on the amount of the contribution. Properties donated to the foundation do not accrue capital gain, and donors can claim deductions for the complete market value of the stock the foundation has in publicly traded companies.
Establishing a private foundation could be key to your estate or heritage wealth planning. To create one, you must first apply for a federal income tax exemption and license. You also need to obtain the proper federal and state documents. Since private foundations are tax exempt, they also require a well-defined structure before you can proceed.
Get Expert Guidance on Charitable Donations
There are numerous wealth benefits of donations, but it can be challenging to figure out the best approach for you. At Park Place Financial, our team of certified financial experts will work with you to develop a personalized strategy for making donations.
This plan may include drafting a charitable trust that ensures a predetermined amount of your wealth goes to a non-profit of your choice and implementing tax strategies that maximize the value of their contribution. Additionally, our tax reduction specialists can help you navigate qualified charitable deductions (QCDs), which few other financial advisors offer.
Our objective is to help you address your current financial needs and develop a plan that empowers you to achieve your goals. Our strategies are backed by hard data and academically validated principles in the financial field. Contact us today to learn more about charitable donations and our other Park Place Financial services.