The following article was written by Abacus Planning Group.
The South Carolina Bar Foundation welcomes all types of charitable contributions. Cash is by far the most popular form of giving. To maximize the income tax benefits of your charitable donations, consider alternatives to giving cash. Most taxpayers will discover that donating an appreciated investment or making a qualified charitable distribution from an Individual Retirement Account (IRA) will provide additional tax reduction benefits.
Giving an appreciated investment to a charity is the most tax-advantaged donor option. The taxpayer is eligible for the charitable deduction and neither the taxpayer nor the charity pay the capital gains tax when the charity liquidates the investment. If you typically give to multiple charities, a donor advised fund may be an efficient and simple manner to implement this plan.
The Qualified Charitable Distribution (QCD) option lapsed, once again, at the end of 2014. Congress may reinstate this option for charitable giving in 2015. If you usually make your charitable contributions in December, deferring a decision on whether to gift cash or request a qualified charitable distribution from your IRA until Congress’s ultimate decision may be worth the wait.
For most taxpayers, the ranking for maximizing the tax benefit of your charitable contributions is:
1) appreciated investment such as a stock or mutual fund,
2) qualified charitable distribution from your Individual Retirement Account, and
The charity receives the same contribution under each scenario but the taxpayer keeps more in his or her pocket when giving an appreciated investment or a QCD. Older taxpayers in the highest tax brackets should seriously consider the QCD over cash depending on impact on the taxability of Social Security benefits, Medicare B and D premiums, Pease phase-out of deductions and the AFHCA surtax. The “Nerd’s Eye View” blog provides a detailed overview of each strategy and the relative merits, which you can discuss with your tax advisor.
Interested in donating to the South Carolina Bar Foundation? Visit our website.