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Charitable Giving: A Potential Win-Win-Win in Reducing Your Tax Burden

According to the National Philanthropic Trust, 95.4 percent of U.S. households give to charity.

At the core of charitable giving is philanthropy—a genuine desire to contribute to humanity. But what many people don’t realize is that donating to your favorite charity can also serve as a key component to your overall financial plan.

Why the Government Rewards Charitable Giving

The National Center for Charitable Statistics estimates roughly 1.5 million registered nonprofits in America. If the U.S. government were to fund each one of them, the country would go bankrupt. But while the government lacks the systems and resources to support charities themselves, they recognize both the social and economic purpose that these meaningful organizations fulfill. So, to help fuel charities, the government offers tax incentives for donating to them.

The “win-win-win” suggested in the title of this article is that of charities, government, and taxpayers. The charities receive funding, the government can focus its funding on other social programs, and taxpayers can pay less while giving more.

How it Works

When you give to a charity, your donation is deductible against your taxable income. If you’re writing a check, the deduction can offset up to 50 percent of your adjusted gross income (your gross income minus deductions). If you’re giving an appreciated asset, such as real estate or stocks, it’s limited to 30 percent of your adjusted gross income. Here’s an example for each:

Writing a Check

Every Sunday, you donate $100 to your church. Come tax time, that will be a $5,200 deduction (for 52 weeks’ worth of donations), as long as it does not exceed 50 percent of your adjusted gross income.

Giving an Appreciated Asset

You own stock in Apple. You bought low at $50 per share, and your stock has since risen to $120 per share. You could donate that stock to your church, and the deduction would be worth $120 per share, as long as the deduction does not exceed 30 percent of your adjusted gross income. 

A Few Common Examples

Direct Gift

A direct gift is a great way to make a modest, one-time donation. There are no strings attached, and the charity can put the gift to work immediately.

Outright Bequest

An outright bequest involves a short statement in your will naming your selected charity as the beneficiary of a specified gift amount. This can be the ideal choice for retirement funds, largely because the charity won’t pay income taxes on the money.

Donor-Advised Fund

A donor advised fund allows donors to make a charitable donation, receive an immediate tax benefit but issue the grants over time. This allows flexibility in grant recommendations and the ability to remain anonymous.

Charitable Remainder Trust

Charitable Remainder Trust (CRT) is an irrevocable trust in which the beneficiary is either the donor or a named individual and the remainder beneficiary is a qualified charity. One of many benefits to this vehicle is the capital gains tax may be eliminated. 

The Largest Misconception Debunked

The most common misconception surrounding charitable giving is that it’s something only wealthy people do, and that notion couldn’t be farther from the truth. Americans collectively gave more than $358.38 billion to nonprofit organizations in 2014, a 7.1 percent increase from the previous year.

Eligible Organizations

To ensure that you see the tax benefits of donating to charity, confirm that the organization you’re giving to has non-profit, 501(c)(3) status. You can give to these charities through any of the methods outlined above, and should consider working with a financial advisor who explain the tax benefits to you as a part of your overall financial plan to help you make the most of your gifting.

A Final Word

With all of the emphasis on tax savings, we must add that all charitable giving should start with a philanthropic desire.

“The tax aspects are a great thing, but first and foremost, you have to possess a true desire to make a donation that has meaning,” says Michael Manning, President and Founder of Manning Wealth Management. “Most people find a passion for giving to a cause that’s close to them, whether it’s their church, alma mater, or a medical issue.”

Manning and his team offer expertise in tax planning and the charitable giving process. To learn more about how you can incorporate charitable giving into your financial strategy while contributing to the greater good, contact Manning Wealth Management today. 

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The Financial Consultants of Manning Wealth Management, Inc. are registered representatives and investment advisor representatives with/and offers securities through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Manning Wealth Management is also a Registered Investment Adviser. Advisory services, fixed insurance products and services offered by Manning Wealth Management are separate and unrelated to Commonwealth. No program can guarantee that any objective or goal will be achieved.