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Charitable Giving

Charitable giving can provide tax benefits under certain circumstances. Individuals and businesses can receive tax deductions or credits for donations made to eligible charitable organizations. However, the specific rules and regulations vary by state, so it’s important to consult a professional and review the tax laws in your jurisdiction for accurate and up-to-date information.

Eligible Organizations

To receive tax benefits, donations typically need to be made to registered or recognized charitable organizations that meet specific criteria set by the tax authorities in your state. These organizations are often referred to as “tax-exempt” or “qualified” organizations. For an organization to be eligible, they must be recognized as a charity by the IRS and need to be operating as a non-profit. Some examples of eligible organizations include churches, organizations that promote advancement of education or science, ones that promote scientific research or investigation, ones that promote advancement of literature, schools, colleges, or other similar institutions.

Donation Limits

There are often limits on the amount of charitable donations that can be claimed for tax purposes. These limits may be based on a percentage of your income or subject to an overall maximum amount. The amount an individual can deduct for charitable tax benefit purposes is limited to no more than 60% of their adjusted gross income, and might be further limited to 50%, 30%, or even 20% of their adjusted gross income depending on the type of property gifted and the type of organization it is gifted to.

Documentation and Receipts

To claim tax benefits for charitable giving, you generally need to keep proper documentation and receipts. This includes obtaining receipts or acknowledgment letters from the charitable organization confirming your donation amount and the organization’s tax-exempt status, along with bank statements, and credit card statements. Documentation needs to include the date of the donation, the amount donated, and the name of the organization. As an individual, you will also need to itemize your deductions on your tax return to claim charitable donations. This means that instead of taking the standard deduction, you would list your eligible expenses, including charitable donations, separately.

Incorporating Charitable Giving into Your Estate Plan

There are many common ways to make charitable gifts, beyond just donating money. A Charitable Remainder Trust, also called an CRT, allows you to receive income from the trust during your lifetime, and the remaining assets go to charity upon your death. Since the charity will ultimately receive the assets, you can claim a charitable deduction for the present value of the charity’s remainder interest. Another common method of making charitable gifts is through a Donor-Advised Fund, also called a DAF. A donor-advised fund is a charitable giving account that allows you to make contributions to the fund and then recommend grants to specific charities over time. It provides flexibility and allows you to involve your family in charitable decisions.

Retirement accounts can also be gifted to a charitable organization. This can be a very tax-efficient way to support charitable causes while potentially reducing the tax burden on your heirs, because you will avoid the income taxes otherwise owed on the distributions from the retirement account. A donated retirement account can also be combined with a type of Charitable Remainder Trust, allowing your heirs to benefit from the retirement account while still providing significant tax savings.

Life insurance can also be directed to a charitable organization. This can be done by simply naming a charity as the beneficiary of your life insurance policy or donating to the policy itself during your lifetime, potentially providing a substantial gift to the charity.

Remember, tax laws can change, so it’s crucial to stay informed and seek advice from a professional in your state to understand the specific rules and benefits of charitable giving for tax purposes. Contact Legacy Counsellors or (413)-527-0517 to discuss more about charitable giving.