Nevada County Media: Nonprofit charitable giving made easy
Special to Prospector
With tax season upon us, you may be seeking ways to meet your philanthropic goals while maximizing tax benefits. Did you know that donating to an IRS-qualified charity can help you lower your tax bill? Before you give, consider these tips:
1. Select a cause
Think about the causes you’re passionate about. The IRS defines 501(c)(3) organizations as those “organized and operated for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children and animals,” so there are lots to choose from.
2. Research charities
Once you’ve decided on a cause to support, use online resources such as Charity Navigator, GuideStar or the Better Business Bureau’s Wise Giving Alliance (www.give.org<http://www.give.org>) to find reputable charities, such as the Nevada County Media Center, whose missions match your personal objectives. These sites can also help you determine which organizations are well run and financially responsible.
While a cash donation is the simplest way to give, your financial advisor and tax professional may be able to recommend other charitable giving strategies that are appropriate for your personal situation. Check to see if your employer matches charitable donations — it’s an easy way to maximize your impact. Also, did you know that you can transfer up to $100,000 directly from your IRA to charity instead of taking your taxable Required Minimum Distribution (RMD)?
4. Keep records
After you donate, the charity should send you a receipt — typically a letter or e-mail — showing the amount of your contribution. Be sure to save this to document your donation when you prepare your taxes. A cancelled check or a credit card statement reflecting your payment can also serve as proof of your donation.
Here are several charitable giving strategies available that provide both income tax and estate tax benefits:
Over the past several years, Donor-Advised Funds (DAFs) have significantly increased in popularity due to their overall simplicity. A DAF is a fund created and administered by a charitable organization to which donors contribute assets. They have no upfront costs or administrative hassle, and they accept a wide range of assets as contributions. Because DAFs handle the administrative burden, they do charge a small administrative fee. Once assets are contributed to a DAF, the donor receives an immediate income tax deduction while decreasing the value of his or her estate for estate tax purposes. Capital gains tax is also avoided on appreciated assets contributed to the DAF. DAFs are generally appropriate for individuals who want to make charitable gifts using a low-cost strategy that provides administrative convenience and flexibility.
Pooled Income Funds
A Pooled Income Fund (PIF) is a fund created and administered by a charitable organization to which individual donors contribute assets. The property contributed by the donor is commingled with contributions from all other donors and managed as one large pool of assets. The donor will receive income based on the annual performance of the fund. Upon the donor’s death, his or her portion of the fund is distributed to the charity or charities selected by the donor. PIFs are generally appropriate for a donor who wants to make a charitable gift for the income tax and estate tax benefits and also wants to retain an income stream without being subject to the high costs associated with a charitable remainder trust.
Charitable Remainder Trusts
With charitable remainder trusts (CRTs), the trustee will distribute trust income to the donor for a certain period. At the end of that period, the trustee will distribute the remainder to the charitable beneficiary named in the trust. CRTs are generally appropriate for a donor who wants to make a charitable gift for the income tax and estate tax benefits and wants to retain an income stream from the assets. Individuals who benefit most from a charitable remainder trust are comfortable with the significant upfront costs to set up the trust and the ongoing administrative burdens caused by annual trust tax filings. Finally, they are not focused on maximizing immediate tax benefits, as the income received by the donor reduces the income tax deduction.
A private foundation is a legal entity created by an individual or group of individuals for some philanthropic purpose. Although many individuals inquire about private foundations, they are generally most appropriate for individuals with substantial wealth who aim to maximize control while hosting charitable events or paying wages to family member employees. Private foundations are subject to the highest level of IRS scrutiny.
Chris Nielsen is Vice Chair of the NCMedia Board of Directors and First Vice President/Investments, of the KNN Wealth Management Group with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Grass Valley, office by phone at 530-273-9877 or via e-mail at email@example.com.
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