One of the aspects of any good estate plan that is designed to minimize taxes is gifting and charitable giving. But knowing who to give to can sometimes be challenging. During the holiday season there are countless charities asking for donations, and not all of them are worthy recipients of your hard-earned money. Some of them may even be fraudsters posing as charities. In this post, we’ll give you five tips for separating the wheat from the chaff.
Trust but Verify
If you ever have any questions about charitable organizations you are being asked to gift to, consider looking them up on the Charity Navigator website. Charity Navigator collects the tax documents filed by over 8,000 charities, and posts them on its website so donors can see where money given to these originations is being spent.
It also rates organizations on how well they spend their money, so you can quickly get a good idea of how much of the money you donate to an organization will actually help the cause, and how much will go to things like administrative overhead and professional fundraisers.
Charity Navigator has become such a well-respected and widely used resource that many organizations actually send their tax documents to Charity Navigator and ask to be included on the site.
Not being on Charity Navigator is not an indication that a charity is no good. It may be new, or small, or local, and many of those are not included on the website. If you want to make sure your money is going to a good cause, you can do yourself what Charity Navigator does, and ask the organization for a copy of its tax documents. 501(c)(3)’s are required to make this information public, so it is perfectly acceptable to ask for it before agreeing to give.
Be Wary of Email & Phone Solicitations
Be very wary of solicitations that come via phone or email unless you have given to the organization that is contacting you in the past. A legitimate charity is unlikely to call you up asking for money if they have never spoken to you before, and an email from a strange organization may contain malware.
If you do get a call or an email from an organization that sounds like one you may want to donate to, don’t donate right away. Take a minute to check out their website and look them up on Charity Navigator.
Say No to Door-To-Door Solicitors
Unless you know and trust the person ringing your doorbell, just say no to door-to-door solicitors.
If someone collecting door-to-door is on the up and up, they should have a brochure or other paperwork they can leave with you that you can use to research the organization online and either send in a donation that way, or mail one in.
Make Sure You Get a Receipt
Although you might be giving just because it feels good, it also has tax benefits. Be sure to get a receipt for any substantial donation you make. If an organization can’t provide you with a receipt, it is probably not an organization you should be donating to.
Talk With Your Attorney
If you are interested in making a substantial charitable donation, you should make sure you get as big a benefit as possible from it. Whether your goal is reducing your taxes this year, or lowering your estate taxes can impact the way you should go about making your gift. A reputable organization is going to understand your needs, and be receptive to working with your estate planning attorney. A scammer is not.
The countdown is on! The holidays and the end of the year are just around the corner. If you have not done so already, it is time to finish making any gifts and donations necessary to minimize your tax burden this year and at the time of your death.
Why Gift?
During the recent election it was revealed that president-elect Donald Trump had used very aggressive tactics in order to minimize his tax burden. Not all of us have millions of dollars in business loses that we are able to carry forward for years on end, but most of us do make charitable contributions throughout the year that can reduce our tax burden. By working with a tax professional now, you can figure out whether you are likely to owe taxes for the year, and if so, whether you can offset those taxes by making a charitable donation.
Most people prefer to make a charitable donation instead of paying taxes because they know they are going to have to pay the money one way or another, and giving it to an organization they believe in makes them happier than handing it over to Uncle Sam.
People who expect to die with a substantial amount of assets should be talking to an estate planning attorney as well as their accountant about long-range giving in addition to focusing on the current year. Right now there is a federal estate tax that hits estates worth more than $5.45 million ($10.9 million for a married couple). Some states also tax estates, but Texas is not one of them.
The federal estate tax can be reduced or even eliminated through charitable donations, but many people would also like to leave money or other assets to their family members without having the government take a large chunk of it. In order to minimize taxes on assets that are passed on to family members, advanced estate planning techniques are often needed. However, there is a simple way to pass down a substantial amount of money tax-free, and that is by giving it as a gift today.
Maximizing Gifts, Minimizing Taxes
As you have probably noticed, the government does not send you a tax bill when you get a gift. What you might not know, is that if you give someone a very large gift, you, the giver, might have to pay a gift tax. The current threshold for the federal gift tax is $14,000 in cash or other assets, per recipient, per year.
This means you can gift as many people as you want up to $14,000 this year without paying a tax on that transfer. If you are married, your spouse can do the same, bringing the total tax-free transfer limit up to $28,000 per recipient per year.
It is important to keep in mind that gifts other than cash count toward the gift tax limit. For example, if you are planning on buying a car for your grandchild as a graduation gift, if it is worth more than $14,000 (or $28,000 if you and your spouse are making the gift jointly), you will owe taxes on the gift and any other gifts you give that grandchild over the gift tax exemption limit.
If you are uncomfortable gifting cash to certain people, you can make the gift to an irrevocable trust set up for the person’s benefit, or to a §529 College Savings Plan and get the same tax benefits. You can also gift amounts above and beyond the $14,000 limit if you pay them directly to the beneficiary’s educational institution or medical provider.
Gifting really is the easiest, and often a very meaningful, way to minimize your current tax burden and your future estate tax burden.