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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. 

Since the standard deduction increased in 2018, there’s less reason for many taxpayers to itemize and 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 strategies.

With the 2018 tax code changes, people are more likely to take the standard deduction which may affect your ability to 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. A donor's ability to claim itemized deductions is subject to a variety of limitations depending on the donor's specific tax situation.

Please note: For 2020 if you take the standard deduction you can claim an "above-the-line" deduction of up to $300 for cash donations to charity. For 2020 only, the CARES Act allows those who itemize their deductions to elect for a 100% of AGI limit donation deduction for cash donations to certain operating charities (this does not include private foundations or donor advised funds, which are still covered by the 60% of AGI limit for cash donations). Please consult with a tax advisor for your specific situation.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.


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