Giving Your Taxes to Charities
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We think about gif
t-giving during the holidays, but many people miss opportunities to give taxable dollars to their favorite tax-exempt churches, colleges, and poverty relief organizations. An entire segment to estate planning is dedicated to the process of helping people give money to charities and take advantage of the related tax benefits. This article describes how charities and contributors can help each other out.
You can deduct the value of any money that you put into a church collection plate from the taxable income for that year. For a person in the 15% tax bracket, a $100.00 gift will actually only cost him $85.00, because the remaining $15.00 will be money that he would have otherwise paid to the federal government as income tax. Therefore, he would give the charity $85.00 and the federal government would give $15.00, for a total gift of $100.00.
A tax payer in the higher income tax brackets of 25%, 28%, 33%, 35%, and 39.6% get much greater participation from the federal government in their charitable giving. Not only will the government’s share of income taxes go to the charity, but the donor gets significant death tax benefits as well. High income tax bracket tax payers often accumulate wealth faster than other people and the 40% federal estate tax can take big bites out of their children’s inheritance. Fortunately, charitable gift strategies help these people preserve their wealth by giving large portions of it to charities.
Preserving wealth by giving it away doesn’t sound possible does it? The fact is that this kind of strategy has been used successfully by wealthy families like the Kennedys and Rockefellers for generations. Although Bill Gates and Donald Trump can use sophisticated charitable giving strategies with greater effect than most of us, you don’t have to own a yacht or a private jet to follow their lead.
One of the simplest strategies for charitable giving is to make a charity the beneficiary of your IRA. Remember, you have never paid income taxes on your IRA (unless it is a Roth IRA), so you or your family will have to pay taxes on the money sooner or later when it comes out of the IRA. However, a charity is exempt from income tax obligations and can receive the IRA completely tax-free. Someone in the 28% tax bracket would only be able to keep $72,000 on the liquidation of a $100,000 IRA, but a charity can keep the entire $100,000.
Too few individuals, attorneys, and charities understand these relatively simple opportunities. Churches, community foundations, and other charitable organizations could increase their funding significantly if they understood these tools better and explained them to their supporters clearly. With some coordination and public education, many churches and other charities could increase their financial strength through this simple estate planning idea.
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Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. Jeff is a Fellow of the American College of Trust and Estate Counsel and the 2014-15 Indiana State Bar Association President . © Copyright 2014 Hawkins Law PC.
