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Tax-Smart Charitable Giving

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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. With the changes to the tax law it’s likely that more of us will choose the standard deduction over itemizing – eliminating the ability to take a deduction for charitable contributions. But here are three tax-smart strategies you can still 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. The second tax-smart strategy is donating appreciated assets. 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 claim the deduction for the full value of your gift in the year you make the donation. 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.

With the 2018 tax code changes, people are more likely to take the standard deduction, but if you don’t itemize you can’t deduct charitable donations. Find out about three tax-smart ways to give and still get a deduction on your income taxes.

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Important Disclosures

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

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