We often hear about philanthropy endeavors and sizable charitable donations of billionaires like Bill Gates, Warren Buffet and Mark Zuckerberg. While there’s no diminishing the value such donations provide for respective charities, there are many other advantages afforded to individuals who choose to make charitable contributions.
In fact, with careful planning, an individual can not only financially support those causes that are near and dear to his or her heart, but he or she can also avoid estate taxes and provide for one’s own financial future needs as well as those of one’s heirs.
While individuals of all income brackets can benefit financially from the tax breaks associated with charitable donations, such benefits increase exponentially for those in higher income brackets.
When it comes to charitable donations, estate planning vehicles including wills, beneficiary designations and trusts can be used to assist an individual in meeting his or her goals with regard to philanthropy and avoiding estate taxes. A will is the most basic and simple way to leave assets to a charity. Not only does the selected charity receive the full amount bequeathed, but the donor is also able to take the applicable tax deduction.
IRA beneficiary designations are another way to give to a charity and get a tax break. By naming a selected charity the beneficiary of one’s IRA, the charity will again receive the full amount of a donation and that amount is deducted from the total value of one’s estate which can reduce the estate tax liabilities of surviving family members.
In our next post, we’ll continue to discuss how charitable donations can be used to reduce tax liabilities and provide income streams for future generations.
Source: CNBC, “Donations: The gift that keeps on giving for donors,” Shelly Schwartz, July 16, 2015
Additional resources provided by the author
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