You may be a cheerful charitable giver, but there’s no reason you shouldn’t also be a tax-savvy one!
If you’re feeling charitable this holiday season, I certainly encourage you to follow those passions and make heart-felt charitable donations. However, while you certainly want to be cheerful giver, there’s no reason you shouldn’t also be a tax-savvy one! There are a number of ways to accomplish a strategy to both support worthy causes, and reduce your tax-bite at the same time. In fact, MarketWatch recently offered a concise list of five tax-savvy strategies:
1. Donor-Advised Funds: A donor-advised fund is like your own private foundation, without the onerous administrative costs or duties. Although you lose final say in the use of the money, through a donor-advised fund you can donate your money this year, receiving the tax deduction this year as well, and allow the funds to sit in the fund until you are ready to make suggestions to the fund administrators. Those administrators aren’t bound to donate the money exactly as you advise, although it is generally in their best interest to work for yours. Note, however, that most donor-advised funds insist on sizable minimum donations. Expect to donate at least $5,000, probably $10,000.
2. Private Foundations: If you are especially passionate about a cause, consider setting up your own private foundation to support it. More information on private foundations can be found on the IRS website.
3. Community Foundations: Community foundations are becoming increasingly popular. Donate to a community foundation and see the results of your charity close to home. You may make large or small donations, whichever suits your budget and your passion.
4. Charitable lead trusts (CLT) or charitable remainder trusts (CRT): Both CLTs and CRTs are complex estate planning tools, that allow you to make tax-savvy charitable contributions.
5. Ordinary giving: Often the easiest way to be charitable is to do it the old-fashioned way, by giving your time, energy, or money.
Tags: Charitable Giving, charitable lead trust, Charitable Remainder Trust, community foundation, donor-advised fund, private foundation, tax-savvy