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Thinking of making a charitable donation? Giving to charity and receiving a tax deduction for your contribution remains a win-win situation, even though there are more federal restrictions on giving than ever before and federal tax brackets are lower due to recent tax law changes.
In fact, more charitable devices are available now, enabling taxpayers to receive tax deductions that maximize their tax benefits while minimizing their actual cost, says Evelyn M. Capassakis, a partner in PricewaterhouseCoopers' Human Resource Services practice in New York City. While contributing appreciated securities to a charity remains an excellent way to make a donation, there's a host of more creative methods to consider, especially if you have a considerable donation to make.
One popular device is the donor-advised fund, whereby donations are made based on the charitable wishes of the donor. Many mutual fund families, large banks and community foundations have established these funds to receive contributions from individual donors.
Donor-advised funds have become a viable alternative to establishing a private foundation, which is used mainly by individuals and companies wishing to make donations of $1 million to $2 million. A donor-advised fund doesn't require the administrative chores associated with a private foundation-nor are there any annual excise taxes on the investment income, as is the case with a private foundation.
Contributing to a supporting organization is another option: Your donation goes to a specific cause, and you control where the money goes without the restrictions that apply to private foundations. "The advantage of a supporting organization is that it is possible to support one or more specific public charities. Therefore, your contribution limitation is higher than is possible with a private foundation," says Capassakis.
For entrepreneurs preparing to liquidate a business, a charitable remainder trust is an attractive option. With this type of trust, you can put a piece of your business into the trust so proceeds from the sale can be reinvested in assets that generate income. You'll receive funds periodically until the trust ends. One of the biggest benefits is that the profits from selling that part of the business that's in the trust aren't taxed. At the end of the trust's term, all remaining funds in the trust are given to the charity you designate.
Trusts are complicated to set up, and you will need expert advice on that front. But without a doubt, it's still possible to give in a timely and tax-efficient way.
Great Falls, Virginia, writer Joan Szabo has reported on tax issues for 17 years.