The holiday season is a wonderful time to give to causes near and dear to your heart. Year-end giving can also be advantageous from a tax perspective, especially for those focused on their personal income tax planning.
Elaine Schmeda, a long-time donor to the Froedtert Menomonee Falls Hospital Foundation, takes advantage of tax-smart giving options to meet her unique charitable goals. Instead of writing checks, Elaine donates a portion of her annual required minimum distribution from a traditional IRA.
“Serving others is a blessing and over the years I’ve been able to support the Cancer Center, Heart and Vascular Department and the Emergency Department,” Elaine said. “I want to show my gratitude to nonprofits and charities, and giving through my IRA works well. It allows me to be a good steward of what God has given me.”
Elaine’s story highlights one of the many giving vehicles donors can use to support the Froedtert & the Medical College of Wisconsin health network mission. Along with traditional gifts of cash, stocks and bonds, there are other beneficial giving options to consider.
Qualified Charitable Distribution
For individuals who are at least 70½ years old, a Qualified Charitable Distribution (QCD) allows a distribution that goes directly from your IRA to a qualified charity of your choice. If you are age 73 or older, you can use a QCD to satisfy your required minimum distribution. This strategy is advantageous if your total itemized deductions fall under the standard deduction.
Utilizing A Donor-Advised Fund
A donor-advised fund (DAF) is a fund sponsored by a public charity. You contribute to the fund and subsequently recommend distributions to your favorite nonprofits. With a DAF, you can contribute several years of charitable contributions to the fund in one tax year. This tax-smart strategy can be especially useful to help reduce taxable income in the year of a significant tax event.
Legacy Giving
Many donors want to give major gifts in their lifetimes but may not have the financial flexibility to do so. Legacy giving is a simple yet significant way to make a lasting impact through your estate. Once you have provided for your loved ones, you can structure a planned gift that will satisfy both your philanthropic and tax goals. One of the easiest ways to create a planned gift is to name a nonprofit as a beneficiary, or partial beneficiary, of your IRA or 401(k). You are generally able to designate a qualified charity as a beneficiary through your plan administrator online.
Contribute Appreciated Securities Held More Than One Year, Rather Than Cash
Donors who use this strategy can eliminate the capital gains tax they would otherwise incur if they sold the security first and then donated the cash proceeds.
Bunching Charitable Contributions from Year to Year
After the passage of the Tax Cuts and Jobs Act in 2017, the standard deduction for charitable contributions nearly doubled. If you find that your total itemized deductions are just below the level of the 2024 standard deduction, it may be beneficial to bunch your 2024 and 2025 contributions into one year (2024), itemize your deductions on your 2024 tax return, and then take the standard deduction on your 2025 tax return.
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