3 Tax Breaks Available Through Charitable Donations

Posted by: Brookside Admin

charitable donation

Giving to your favorite charity is a great use of your disposable income. Not only do these donations help your community, but they can also help you save on your taxes. But, you need to know some specific strategies to ensure that your donation grants you the tax breaks you deserve. Here are some tips that help lower your tax bill when you donate to charity. 

Donate appreciated stock instead of cash

If you have a valuable stock portfolio, it might make more sense for you to donate stock to a charity than cash. If you own a stock that has appreciated in value, giving that stock to charity allows you to deduct its value on the day of the donation. This method also allows you to save on capital gains taxes that you'd otherwise owe on the stock's increased value. This works best with a stock that you've held for more than a year because that allows you to deduct the current market value of the stock, rather than only deducting what you paid for it. 

Using donor-advised funds

A donor-advised fund can be used for a variety of reasons, and for charitable donations it allows you to reap the tax benefits now and dole out your donation to charities later, or gradually over time. The reason to do so could be because you'll get the most benefit from a charitable donation this year, but don't have a charity picked out yet, or want to be able to give a certain amount to a charity for multiple years. The other benefit of using a donor-advised fund is that it allows you to donate more than just cash. Some funds will accept real estate, stocks and other investments that you wouldn't be able to donate directly to charity. 

Donating from your IRA

Most retirement accounts include a required minimum distribution that must be taken out annually once you're retired. This RMD is typically factored into your adjusted gross income for tax purposes. However, if you donate directly from your IRA to a charity, up to $100,000 will count as your RMD, but won't be included in your adjusted gross income. While you won't be able to also deduct the value of your donation, you'll still likely get a tax break with a lower taxable income. 

For help using these strategies, and other tips for tax savings, contact the CPAs at Brown Kinion and Company.