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5 Types of Charitable Contributions That Also Help Your Finances

5 Types of Charitable Contributions That Also Help Your Finances

May 27, 2021

Most Americans want to increase their charitable contributions as their own financial stability grows. But they usually think about donations in terms of cash and checks. Could there be better ways to donate to your favorite charities? In fact, there may be many alternatives with benefits both to you and to the recipients. Here are five to consider. 

1. Appreciated Stock

Many of the stocks and securities in your investment portfolio appreciate over time, gaining value. When you sell these, you generally pay taxes on the difference between what they're worth now and what you paid for them originally.

However, donating these appreciated non-cash assets rather than taking the cash helps you as well as the charity. This is because you may deduct the appreciation as a charitable donation. So, if your stock was bought for $1,000 and sold for $10,000, you can deduct $9,000 as a charitable contribution and $1,000 as a tax basis. 

2. Retirement Withdrawals

When you reach the age of 70 1/2, you generally must begin to withdraw assets in a 401(k) plan. In fact, failure to take this Required Minimum Distribution (RMD) each year may result in a hefty 50% penalty from the IRS!

But what if you don't need to use that money? If so, consider contributing it directly from the 401(k) as a Qualified Charitable Distribution (QCD). You didn't pay taxes on the income when you contributed it to your retirement account and you can deduct it now as a charitable contribution — regardless of whether or not you itemize your deductions on income taxes. 

3. Unused Hard Assets

Do you have unused assets sitting around? This could be anything from a vehicle you no longer drive much to artwork that hasn't been out of storage in years.

Such items could be contributed to charitable organizations in a variety of ways. You might donate the artwork to a silent auction, sell the car and donate the proceeds, or just gift the asset to the charity to sell themselves. Generally, your tax deduction is the market value of such an asset. So, like the appreciated stocks, your deduction could be much more than what you spent on it. 

4. Beneficiary Designations

Don't overlook a simple way to give to charity: beneficiary designations. Naming the organization as a beneficiary on anything from a life insurance policy to a retirement account doesn't cost you anything right now. And it prevents the donation from passing through the probate process, ensuring more privacy. 

5. Retained Life Interest

Want to give something large, such as real estate, but you're still using it? Then consider a retained life interest. With this arrangement, the charitable organization is granted the title or deed to the property but the donor (you) retain the right to use it during your lifetime. When you pass away, the receiving charity takes full custody of the asset. 

Retained life interests, or estates, are perfect for anyone without a lot of family members to care for in their estate planning. And if your heirs don't want the asset, this allows you to create a legacy with it. In addition, it costs you nothing now but you may be able to take the tax deduction in the year in which the transfer is completed. 

Where to Start

Certainly, donating items like these can be both effective and cost-effective. But it's often much more complicated than simply writing a check. The best place to begin is to meet with an experienced wealth management service that understands charitable giving alternatives.

Presidio Wealth Management has aided clients with all their charitable and tax planning needs for nearly 20 years. Call today to talk with a charitable giving professional and start making your personalized plan.