Perhaps you’ve come to a point in life where you want to be part of something bigger than yourself. And you want to make informed decisions about smart, meaningful philanthropy. Where to start?
First, a brief historical context for how charitable giving has evolved over time: In 1913, Congress officially exempted charitable organizations from paying tax. Shortly thereafter, in 1914, the world’s first Community Foundation was established (The Cleveland Foundation). Getting a personal tax deduction for donating to charitable causes has been allowable since 1917, when Code Section 170 was established, and was generally aimed toward “wealthy” taxpayers to encourage charitable giving to these organizations. Since then, the complexity of charitable giving has only increased.
Donor-Advised Funds came into vogue in the 1930s. In the late 1960s, Congress officially defined Private Foundations as well as Charitable Trusts, and established the 30% and 50% caps on certain types of charitable giving. In 1999, certain states, including Colorado, created incentives for conservation easement donations. Most recently, in the early 2000s, Colorado began offering some very valuable tax credits for certain types of focused charitable giving.
It’s enough to make your head spin trying to figure out how to balance one’s desire to give to charity with the complexity of vehicles available and various tax saving results. To get started on a truly effective lifetime giving plan, consider these issues:
- Do you have a lifetime giving plan? Do you want to frontload giving during your lifetime, or give away assets to charity upon your death?
- Do you want to create a legacy for your children to continue gifting? Consider a Donor-Advised Fund – a great way to involve the whole family, passing the torch from one generation to the next.
- Are you interested in receiving a tax deduction for your gifting, or is that not a critical factor?
- Do you actually receive a tax benefit from your charitable giving? Do you itemize deductions, and is your income high enough to trigger tax prior to giving to charity?
- Do you know how much is “too much” to give for purposes of your personal tax benefits and contribution carryover rules?
- Do you want privacy surrounding your charitable giving? Consider a Donor-Advised Fund.
- Do you have highly appreciated assets you’d like to gift, but also create an income stream from during your lifetime? Consider a Charitable Remainder Trust.
- Would you consider hand picking recipient organizations, in order to greatly maximize your tax deduction? A great illustration of this is theColorado Child Care Tax Credit. By way of example, when you give $1,000 to a qualified licensed child care facility in Colorado (including foster care centers, homeless youth shelters, residential treatment centers, etc.), you can save $800 in taxes, and thus only be out $200 for such a contribution. Roughly speaking, this translates to a 30% Federal tax reduction ($300) due to the $1,000 itemized deduction, and a $500 Colorado credit for same donation. $1,000-$300-$500 = $200 out of pocket…but the organization receives $1,000!
- If you’re 70-1/2 or older, do you know about the IRA qualified charitable distribution rollover credit? If you’re that age and inspired to give, you have the option to directly transfer up to 100% of your IRA’s required minimum distribution to, for example, The Community Foundation or your other favorite nonprofit(s) – tax free. And you can do so now, or anytime – you don’t have to wait until the end of the year. Benefits include tax reduction, AGI reduction, ordinary income reduction, etc. – and there’s no need to itemize. For additional background, see Six 2016 Retirement Account Rule Changes You Need to Know and the IRS’ Required Minimum Distributions (RMDs) overview.
To navigate these considerations and more, it’s prudent to call on some experts, including a qualified CPA, an estate planning attorney and one of the most reliable local resources of all – The Community Foundation Boulder County.
To learn more about your giving options with The Community Foundation, contact Margaret Katz, Director of Philanthropic Services at Margaret@commfound.org or 303.442.0436.