Now that the holiday season has arrived and 2018 is drawing to a close, many of us will be contemplating end of the year charitable gifts.  Here are a couple of important tax breaks you will want to keep in mind when making charitable contributions.

 

Donations of Appreciated Securities.

 

One of the most tax-advantageous ways to make charitable gifts is to give appreciated stocks or other appreciated property rather than cash.  That’s because charitable donations do not trigger recognition of capital gains if the gift was owned by the donor for a year or more.  As a result, donations of appreciated assets not only reduce taxable income by the full fair market of the value of the gift, the donation also avoids the payment of state and federal income taxes you would have incurred on the built-in capital gains if you had sold the appreciated asset and donated cash.

 

By the same token, if you intend to give an investment that has lost value while you owned it, then you’re better off if you sell the asset first and donate the sale proceeds.  That’s because you will get to deduct the capital loss you recognize on the sale, and will receive a charitable deduction for the full value of the contributed property.

 

Tax Free Qualified Charitable Distributions from IRAs.

 

As we all know, distributions from a traditional IRA are included in income.  In addition, owners of a traditional IRA who are over 70 ½ must begin taking minimum distributions from their IRA account.

 

If you are over age 70 ½ and are the owner of an IRA, Section 408(d)(8) of the Internal Revenue Code allows for tax free distributions (including required minimum distributions) of up to $100,000 from IRAs to qualified charitable organizations, provided the following conditions are met:

 

  • You must be at least 70 ½ at the time of distribution.  There is no wiggle room here.

 

  • The distribution must be from an IRA – 401ks, SEP IRAs, Simple IRAs and other employer-sponsored plans are not eligible.  However, this restriction can be circumvented if you roll your employer-sponsored plan account into an IRA before you make the contribution.

 

  • The distribution from the IRA must go directly from your IRA account to the charitable organization.  This is important:  You must not personally receive the distribution for even a moment!

 

  • The funds must go to a public charity.  Contributions to private foundations or donor advised funds are not eligible.

 

Importantly, Qualified Charitable Distributions (QCDs) from an IRA are not included in your taxable income and so are not subject to the limitations on the deductibility of charitable distributions that are tied to taxable income.  Using QCDs to lower your taxable income can also improve your eligibility for various other tax deductions and credits.

 

That being said, distributions from Roth IRAs are not included in taxable income and minimum distributions are not required from IRAs.  As a result, charitable contributions from a Roth IRA are not as advantageous.

 

If you could use a little help getting in the holiday spirit, then I suggest you watch “The Man Who Invented Christmas”.  It tells the (dramatized) story behind Charles Dickens’ writing of The Christmas Carol.  This 2017 movie is available free of charge to Amazon Prime Members through Prime Video, or you can purchase a copy HERE .  You can also watch the trailer HERE.  I’ve added it to my holiday film collection.  I think you’ll enjoy it!

 

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