It happens at about this time every year. As December 31 gets closer, so does the deadline for making financial moves that will have impact on your income taxes (with the exception of IRAs, of course). What can you do to offset the effects of your income on your IRS obligations for 2019?
You can’t change the income and expenses you’ve already recorded, but you can always make charitable donations if you’re not planning to take the standard deduction. Donations to charity are down because of tax law changes in the Tax Cuts and Jobs Act. So, you can help an organization in need and give yourself a tax break at the same time.
For Your Consideration
You already know that in order for your contribution to be tax-deductible, your donation must be made to a qualified 501(c)(3) organization. There’s no shortage of those. You might, though, consider options other than the more traditional ones – some of which can be more tax-advantageous. For example:
Long-term appreciated assets. You can give long-term appreciated assets in lieu of cash to reduce capital gains taxes. These can represent up to 30 percent of your AGI, and you’ll get a tax deduction for the full fair market value.
Charitable Remainder Trusts. If you have low-basis stock, this might be a good vehicle for you. Charitable Remainder Trusts are complex in that they consist of two steps. First, you donate assets to a third-party (your beneficiary) for a specified period of time, providing temporary income for that individual. After that has expired, the remainder of the assets gets donated to charity.
Warning: Keep in mind that these are irrevocable trusts. Once you have signed over your assets to your beneficiary, you can no longer change or terminate the trust without having permission granted by the beneficiary.
IRAs and qualified charitable distributions of your required minimum distributions (RMDs). You can satisfy all or a portion of the amount of your required minimum distribution from your IRA by making qualified charitable donations from it. Reporting this transaction on your income taxes is rather involved; we can help you with this.
Many Other Options
There are other methods you can use to make donations that are tax-advantageous to you. These include:
- Participating in donor-advised funds (taking an immediate tax deduction and paying no capital gains tax, then investing funds to grow tax-free while periodically donating some of the assets to charitable organizations).
- Combining multiple years of charitable donations into one year’s tax return.
- Charitable estate planning (naming a qualified charity in your will, reducing your heirs’ estate taxes).
Clearly, the vehicles we mentioned here take more effort than writing a check and mailing it. Plus, you need to fully understand all the rules and tax implications of each. We’d be happy to walk you through what you need to know about one or more of these. Contact us, and we’ll set up a consultation.