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Narrator: Getting a tax deduction probably isn't the primary reason you give to charity, but being tax-smart with your giving can maximize your contributions along with your tax benefits.
If you were itemizing your deductions as opposed to taking the standard deduction, here are three strategies you can use for charitable giving.
First, a giving strategy called "bunching"--where you group two or three years' worth of your planned charitable donations into one year, boosting your itemized deductions over the standard deductions limit for that year. In the years that you bunch your donations, you can itemize and claim the charitable deduction. Then, in alternate years, you take the standard deduction.
On-screen text: Disclosure: *applied to long-term assets held for over a year
Narrator: The second tax-smart strategy is donating appreciated assets.
On-screen text: Disclosure: For illustrative purposes.
Narrator: Selling appreciated stock generates a taxable gain, but donating appreciated stocks directly to charity gives you a tax deduction for the fair market value of those stocks. You can use this strategy to deduct up to 30% of your adjusted gross income. You'll avoid capital gains on the sale, and just as with a cash donation, a gift of appreciated stocks can also help you exceed the standard deduction limit.
However, many charities can't directly accept gifts of appreciated assets, and that brings up our third tax-smart strategy for giving – using a Donor Advised fund, or DAF. When you place appreciated assets into your DAF, the fund sells those assets on the open market and grants the proceeds to charities, according to your directions. Whether you donate cash or appreciated assets, with a donor advised fund, you can claim the deduction for the full value of your gift in the year you make the donation. Assuming you meet the adjusted gross income, or AGI limitations, you can then direct the DAF to distribute grants from your fund whenever you choose. With both your cash and appreciated assets, a donor advised fund offers flexibility and control for tax-efficient charitable giving.
If you would like to learn more about these and other charitable giving strategies, contact a Schwab financial advisor or visit schwab.com/taxstrategies.
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