Tax season can be a sharp reminder to identify opportunities to minimize exposure and maximize deductions. As the filing deadline approaches, consider these four ways that charitable giving can supercharge your tax plan in 2017.
1. Look beyond cash
People often overlook appreciated, non-cash assets in their charitable plans. The assets you have built as a business owner or entrepreneur could be among the best to give to charity. These may include publicly-traded stock as well as more complex assets such as restricted stock, interests in private businesses (C-Corp and S-Corp), real estate, private equity, venture capital funds, and hedge funds.
When you donate assets that have been held for more than one year, you can enjoy a current year tax deduction and potentially eliminate capital gains tax liability on their sale. This allows you to pay lower taxes, and your favorite charities receive maximum support.
2. Pick the right time
It might be a particularly good time to donate non-cash assets to your favorite causes if you are about to sell your business or another appreciated investment, face a large tax bill, receive an inheritance, or retire.
Something else to consider is the economic environment. Many asset values are currently high and tax reform is on the agenda in Washington. It may be prudent to maximize charitable deductions before tax policy changes or another downturn in the market occurs.
3. Keep good records
By the time tax season arrives, you may have forgotten that check you wrote at a charity event or other impulse donations. Recording all your grants in one place as you make them helps you claim all the available tax benefits.
It can also be a rewarding and motivating experience. The history of your charitable activity is a great basis for defining your charitable mission. Once your taxes are out of the way, take the time to consider whether your past giving matches your values and long-term philanthropic goals. Is there a particular cause, need or region that has special meaning for you? Can you give time and expertise in addition to money? Do you want to involve your family in the decision-making process? When you focus your generosity, you can deepen your connection to the charities and communities you support.
4. Consider a donor-advised fund
If your favorite charities cannot accept non-cash assets, you can contribute them to a donor-advised fund. Check with your provider first, but many donor-advised funds will liquidate the non-cash investments or assets and then deposit the proceeds in your account, relieving you and the receiving charities of the associated administrative burden.
On the date you transfer the assets to a donor-advised fund, you will become eligible for a fair market value tax deduction. Then you will be able to make grants to your charities of choice at your convenience.
There are simple web interfaces and mobile apps offered by many donor-advised funds that make it easy to transfer assets from your investment accounts, recommend grants with a few clicks, see and analyze your giving history, and generate the reporting required for your taxes.
Incorporate thoughtful charitable giving into you tax plan to maximize the impact of your philanthropy and receive significant corresponding tax benefits.
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