Whether your business is making 7 figures and you’d like to create a legacy for your brand or you’re a small business owner simply looking to give back in your community, charitable donations can be a great way to use your assets to benefit organizations that speak to your core values. Below are 4 different strategies that you can use to give back and meet your philanthropic goals as well as how they may lead to tax benefits for you and your family.
Beneficiary Designations
One way that you can plan to give back is to name a charity as a beneficiary on your qualified plan and life insurance or in your IRA or 401K. This is a great option if you would like your assets to help the next generation and create a legacy for your family or brand name. According to Accounting Web, depending on your existing beneficiaries, you may also wish to name the organization as a contingent beneficiary. Since retirement assets are often highly taxed, donating a portion of your benefits may ease your family’s tax burden, and the charity that you donate to will not have to pay income taxes on your donation.
Qualified Charitable Distributions
If you are taking Required Minimum Distributions from your IRA, you may be able to set up a qualified charitable distribution. Setting up a QCD will allow you to set up your payments to be payable to the charity of your choice rather than taking them yourself.
Investment Planning
If you are looking to make changes to your stock portfolio, you can donate shares to a charitable organization rather than selling them. This can help you to avoid large capital gains and may help you rebalance your portfolio. This type of donation may also qualify you for a tax deduction for the value of the stocks.
Charitable Estate Planning
There are many strategies for charitable estate planning. For example, a charitable lead trust may be started during your lifetime and will pay an annuity to your charitable beneficiary of choice. The remainder of your estate after the term you select for the CLT can then be distributed to noncharitable beneficiaries.
Another popular option is a Charitable Lead Unitrust Increasing (CLUT,) which donates a fixed percentage of your trust’s assets to the organization of your choice. By reducing the amount of your estate, you are also reducing the estate taxes that need to be covered. To decide which charitable estate planning tactic might be right for you, speak to your tax professional and legal representation.
Gifting a portion of your assets to charity is a wonderful way to pass your resources on to a good cause. Including charitable donations in your tax strategy can be mutually beneficial for you and the organization that you are supporting and will help to make sure that the legacy that you leave behind will help others for years to come.
