Philanthropy & Taxes: Giving is Receiving

By April 2, 2019Resources

Philanthropy & Taxes: Giving is Receiving

It’s fulfilling to give back. And in return, the IRS rewards philanthropists by allowing them a tax break for their humanitarian efforts. Your tax bill can be lowered by donating to certain qualified charities, such as religious organizations, American Red Cross, Goodwill, and any other charity that is a tax-exempt 501(c)(3) organization or covered under Section 170(c).1

While time spent volunteering cannot be deducted, aside from money, other appreciated assets are often eligible for donation. Property that appreciates in value, such as stock, can result in a double-benefit. “Not only can you deduct the fair market value of the property (so long as you’ve owned it for at least one year), you avoid paying capital gains tax,” according to Forbes.2

In certain cases, even money that the IRS requires be taken out of a tax-deferred account like a traditional IRA can be donated to a qualified charity if you don’t need the money. (RMDs, or Required Minimum Distributions, which start at age 70-1/2, can add a lot to your yearly “combined income” as calculated by Social Security.) Donating from a traditional IRA account can lower your income tax burden, but you need to follow special rules governing these QCDs, or Qualified Charitable Distributions.A

Getting More Than You Give

Beyond tax breaks, studies show that being philanthropic improves one’s emotional well-being. For instance, according to MoneyCrashers.com, studies show that people who give more than others experience greater life satisfaction than those who do not. Furthermore, a study completed by a professor at the University of Oregon “demonstrates that charitable contributions create a response in the brain that mimics one activated by drugs and other stimuli. This response elicits a surge of dopamine and endorphins.”3

When it comes to giving back, every little bit counts. If you are not looking to make a large sum donation but still want to make a difference, consider donating to a cause that is outside of U.S. borders.

According to TheLifeYouCanSave.org, “In developing countries, even just a few U.S dollars could result in a week’s worth of meals for a starving child, much-needed medical attention and even improved schooling.”4 Keep in mind that most international charities are not tax deductible, but a positive impact can still be achieved by making a smaller monetary contribution to a developing country.

The information provided is not written or intended to be as specific tax or legal advice. You are encouraged to seek tax advice from a qualified tax professional in regard to your personal situation.   

Sources
1 “Tax Deductions for Charitable Donations.” TheBalanceSMB.com. https://www.thebalancesmb.com/tax-deductions-for-charitable-donations-2501942?_ga=2.123811086.545464025.1552928752-1650004419.1552336522 (accessed March 18, 2019).
2 “11 Tips For Making Your Charitable Donation Count on Your Taxes.” Forbes.com. https://www.forbes.com/sites/kellyphillipserb/2015/12/20/11-tips-for-making-your-charitable-donation-count-on-your-taxes/#360f625f2060 (accessed March 18, 2019).
A https://www.kiplinger.com/article/taxes/T054-C032-S014-qdcs-a-strategy-to-get-more-from-2018-rmds.html  QCDs
3 “Top 10 Benefits of Charitable Giving and Donations.” MoneyCrashers.com. https://www.moneycrashers.com/benefits-charitable-giving-donations/ (accessed March 18, 2019).
4 “9 Positive Effects of Donating Money to Charity.” TheLifeYouCanSave.org. https://www.thelifeyoucansave.org/blog/id/200/9-positive-effects-of-donating-money-to-charity (accessed March 18, 2019).