With all the discussion about tax cuts and reform in Washington, don’t be distracted and forget that now is an important time for you to be thinking about year-end tax planning. Yes, the tax laws, including those on charitable giving, may change in 2018, but let’s focus on what we know about the current charitable giving tax laws.
We will soon be into the holiday season, which is an important time of the year for charitable giving as many individuals make gifts to their favorite charities during this time. Everyone should review your charitable giving to date, how this compares to last year, and estimate your 2017 income and what tax bracket that puts you in.
Sometimes additional charitable contributions will keep you from moving into that next tax bracket. We have many people who have a Donor Advised Fund at the Community Foundation who make a year-end gift into their charitable-giving account based on this type of year-end tax planning.
Then, they can immediately or at a later date make grants out of their fund to their favorite charities.
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With the stock market at record highs, remember that, under current tax laws, a donation of appreciated securities is one of the most tax-advantaged ways to give. By transferring the securities to a charity, you avoid the capital gain and also get the charitable deduction for the contribution. Stocks in your portfolio with the largest capital gain are the best to donate.
There is a specific charitable-giving tool that many retirees can utilize to maximize their support of their favorite charities. If you are 70 ½ or older and have required minimum distributions (RMDs) that you must take from your IRA, making a Qualified Charitable Distribution (QCD) from your IRA to your favorite charity is a tax-wise way to make a gift.
A distribution of up to $100,000 may be made and the amount will count towards your RMD, but it will not be recognized as income on your tax return. The distribution must come directly from your IRA custodian to the charity and your IRA custodian should have a form for this type of distribution readily available.
We have a number of people who add to their scholarship or designated funds at the Community Foundation using this tool. Unfortunately, under current law, Donor Advised Funds do not qualify for a QCD. We don’t know if this charitable-giving tool will be available after the tax laws change, but you can certainly take advantage of it this year.
Also, remember that some charities have Missouri State Tax Credit provisions.
For example, Community Services League qualifies for the Food Pantry Tax Credit, where you can receive tax credits of 50 percent of your donation. A credit is much better than a deduction because you basically subtract the credit from your Missouri State Tax obligation.
Hope House qualifies for the Missouri Domestic Violence Tax Credit, which is a similar program.
So,be aware of these and similar tax-credit programs that can help you minimize your tax liability and maximize the support you can provide to charities.
Try to focus on what is known for this tax year as we wait for the dust to settle on future tax cuts/reform.
Now is the time to get a jump now on your year-end tax planning, and charitable giving should be an important component of your plan.
Phil Hanson is president and CEO of Truman Heartland Community Foundation.