For some givers, the option to tithe and give through an investment account can result in greater tax savings over traditional cash giving, while the gift provided to Citylight is the same value.
- Citylight will receive the full value of the donation while eliminating or reducing the capital gains tax paid by the gift giver.
- The giver can reduce taxable income while maintaining the giving rate.
- In some cases, the donation can grow tax free
There are many opportunities to reduce your taxable income while gifting money/assets/etc. to our church:
- Qualified Charitable Distribution
A QCD is an IRA distribution from an individual who is older than age 70 1/2 that is paid directly to a qualified charity. By transferring the IRA directly to the charity the amount is excluded from the taxpayer’s income tax return. By excluding the IRA income, it may allow the taxpayer to avoid taxes on Social Security benefits, higher Medicare premiums, higher tax brackets, and surtaxes such as the 3.8% net investment income tax. The QCD is limited to $100,000 per IRA owner.
- Highly Appreciated Stocks
More tax efficient than a QCD is a contribution of appreciated stocks. Through the transfer of appreciated stock the donation is not subject to federal capital gains tax of 15-20% and state income taxes of 0-8% in Nebraska. Additionally, the donor can also deduct the stock’s total fair market value. Potentially this could provide a tax savings to the donor of 50% of the total asset donated.
- Donor Advised Fund
A DONOR-ADVISED FUND, or DAF, is a giving account established at a public charity. Most major brokerages have these available. It allows donors to make a charitable contribution, receive an immediate tax deduction and then recommend grants from the fund over time. Donors can contribute to the fund as frequently as they like, and then recommend grants to their favorite charitable organizations whenever it makes sense for them.
Donor advised funds (DAFs) provide five primary tax benefits to the donor:
- Income Tax: You receive an immediate income tax deduction in the year you contribute to your DAF. But check with your Tax Advisor, the IRS does mandate some limitations, depending upon your adjusted gross income (AGI).
- Capital Gains Tax: You will incur no capital gains tax on gifts of appreciated assets (i.e. securities, real estate, other illiquid assets.)
- Estate Tax: Your DAF will not be subject to estate taxes.
- Tax-Free Growth: Your investments in a DAF can appreciate tax-free.
- Alternative Minimum Tax (AMT): If you are subject to alternative minimum tax (AMT), your contribution will reduce your AMT impact.