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Steps for Charitable Giving
Many people choose to lower their tax bill by making charitable contributions. There are certain steps that a person can take to be sure that their contributions are reflected on their tax returns as well as in their estate plan. But how?
With the recent election, regardless of which way you voted, I’ve been asked about including a deduction to a political organization. Unfortunately, this type of giving is not considered charitable. The easiest way to ascertain whether an organization is charitable or not is to do a little research. You can review IRS Publication 526 to do this. Why isn’t this donation deductible? The easy answer is because if you receive a benefit, any benefit, from your donation, then the value of that benefit doesn’t count towards your deduction amount.
On a different note, many people who are charitably inclined like the idea of establishing a foundation that will continue after they die. You can set this up during your lifetime – but keep in a mind that a small percentage must be distributed to charity each year. Normally this isn’t an issue and the tax benefits can be substantial. You can save estate, capital gains and ordinary income taxes. This can really add up.
So instead of giving this tax money away to Uncle Sam, you can create your own charitable foundation, donate your assets, including life insurance, to it and maintain some of the control over how the money is spent. As long as we know your vision, there are ways to benefit both the charity and your estate.
The vehicles to reduce your taxable estate are many. The simplest is to take advantage of making annual tax-free gifts. Currently you’re entitled to gift $14,000 per year per person until the day you die.
You can also make an unlimited amount for tuition and medical expenses if you make the gifts directly to the educational institution and the health care provider. Charitable gifts are unlimited as well.
But what if you want to make a gift of more than $14,000 to someone this year? You can do that, no problem. And more than likely there won’t be tax due in spite of making a gift over the allotted amount. What many people don’t know is that we are able to gift $5,490,000 over our lifetime above the annual gift tax exclusion of $14,000 before there are any tax consequences.
Even though the gift and estate tax rates are the same, it costs you a lot less to make a gift and pay the tax while you are living than it does to wait until after you die for your estate to pay the estate tax which can be as high as 40%.
If you have questions on charitable giving or reducing your taxable estate so that you control who gets your assets when you die, give me a call at 724-203-0163 and we can work out the tax consequences together.