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November 11, 2022
New Mexico’s Legal & Financial Weekly
Vol. 10.102 No. 45
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4 Tax-Smart Strategies for Your Charitable Giving
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re you one of the 68 percent? Or maybe even the 17 percent?
The former are those Americans who, despite the current economic uncertainty, intend to donate a similar amount of money to charity this year as they did in 2021, according to a new survey conducted by financial services firm Edward Jones with Morning Consult. While the latter – kudos to you – are planning to dig even deeper into their pockets.
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Here’s how to do it in a way that might be more advantageous when you file your taxes: 1. Take advantage of the upside of higher gas prices.
through vehicles like a donor-advised fund.
So you, being a caring person, have decided to volunteer at a charity whose work you admire. The IRS lets you deduct unreimbursed out-ofpocket expenses like the cost of gas for driving back and forth.
3. Consider the RMD trap.
And with prices at the pump being what they are these days, the deduction might be worth more than any “gently used” clothes you donate to your local resale shop. 2. Act like your own charitable foundation. Three words: Donor-advised funds (DAF). If you haven’t heard of them, you should. According to a report by the Philanthropy Roundtable and American Enterprise Institute, they’re the fastest growing option in charitable giving – no doubt because, as the report concluded, they “help to democratize philanthropy” by essentially acting as “small, personal foundations” for people who don’t have treasury secretaries on their speed dial.
The I R S generally requires t h a t traditional IRA holders take annual income withdrawals, known as required minimum distributions (RMDs), starting at age 72 even if they don’t want or need the money. But that cash, which is subject to ordinary income tax, could put you into a higher tax bracket and adversely affect your Social Security payments and Medicare benefits. And not taking your RMD can have serious consequences. “The IRS penalty for not withdrawing it is 50 percent of the amount not taken on time,” says Gildehaus.
One Strategy? Folks age 70½ and older can make what’s known as a QCD (qualified charitable distribution). That allows you to meet your RMD by instructing your IRA administrator to send as much as $100,000 a year from your account to an IRS-qualified charity, and – wait for it – not only would you then not have to pay taxes on the money since it’s going to Basically, with DAFs, you make an irrevocable contribution to the a charity, but your RMD may be reduced in future years. fund – whether cash, stock or other marketable securities, and you get to recommend grants/distributions to one or more of your favorite IRS- 4. Use caution when donating to political organizations or candidates. qualified public charities to support. Maybe it’s your local homeless Okay, so this is really more of a caution. Remember that 17 percent who shelter. Or maybe it’s a religious institution. said they intended to donate even more this year? Well, 39 percent of them Whatever you decide, it’s a win-win situation: You get an income tax cited social/political issues as the catalysts. That, however, doesn’t mean deduction in the year of the contribution, the money you donated to the any contribution you make to political organizations or candidates will fund has the potential to grow over time and any investment growth is tax- score you a tax deduction. They won’t. free, expanding your charitable impact. *Edward Jones, its employees and financial advisors cannot provide tax “DAFs can be a powerful tool for helping people make a positive impact in or legal advice. You should consult your attorney or qualified tax advisor the world, which is something our survey found Millennials and GenZers regarding your situation. are especially interested in,” says Zach Gildehaus, a senior analyst at Edward Jones, whose local financial advisors can help you figure out how best to incorporate charitable giving into your overall financial strategy -(NewsUSA)