Most know a direct donation to your favorite charity is the simplest way to receive a charitable tax deduction.  However, many less well-known ways can also help you donate to a charity in a tax-deductible way.  Here are several creative ways donors have available to gift to charity.

 

1. Charitable Lead Trust – Pays an annuity directly to a charity named by you for a specified period or for life.  At the end of the period specified, the remaining principal is returned to you or someone you name as the residual beneficiary.

2.  Charitable Remainder Trust – Is the opposite of a Charitable Lead Trust.  This kind of charitable trust makes an annuity payment to you or to anyone you name for a specified period (which could be for the rest of your life) then pays any remaining principal directly to a charity (or charities) named by you.

3. Donor Advised Fund – Is a fund set up that allows you to make a large donation in one year and then “advise” the custodian regarding which qualified charities you want to contribute to each year.  The new 2018 tax law has renewed interest in Donor Advised Funds because it allows donors to effectively bunch donations into one year allowing a tax deduction that may have been lost due to the increased standard deduction.

4. Private Foundation – Is similar to the Donor Advised Fund, however it is usually more cumbersome to operate (i.e. more red tape) and therefore, is more expensive.  For these reasons a Private Foundation is usually only recommended if a donor has a substantial amount set aside or earmarked for charities while a Donor Advised Fund can usually be set up for as little as $5,000.

 

There is also a simple strategy for those who are older than age 70-1/2 and are required to take annual taxable distributions from their IRA.  These donors are permitted to direct up to $100,000 per year from their IRA to a qualified charity without paying tax on the distributions.  This strategy works well if your total itemized deductions do not exceed the standard deduction.  To qualify, the transfer must be made directly from an IRA to a qualified public charity (transfers to Donor Advised Funds or Private Foundations do not qualify).

 

Another popular strategy is to remember a charity in your will.  This works well if you are not sure you will have anything left when life ends.  For those who are fortunate enough to know that they will never run out of money, giving while alive will not only allow you to witness the benefits of your generosity, but it also provides the charity an opportunity to acknowledge your kindness and to thank you in person.

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The CFWMC would like to remind all donors to consult your attorney, financial advisor or accountant for advice with long-term commitments.