3 ways planned giving can help reduce your tax burden

Each spring, as the azaleas on West Campus reach their peak, seniors sprint toward graduation, and we recover from the thrills of March Madness, we go through another, less pleasant annual ritual: Tax Day. 

Many of us are surprised at how much we owe Uncle Sam every year. It can be so painful to write that check!

Here are three ways you can consider reducing your tax burden next year:

1.  Charitable giving

Reduce your tax burden next year by making a donation to a charity. U.S. tax law allows taxpayers to claim an income tax deduction for money or other assets contributed to qualifying charities, like Duke University. By claiming this deduction on your tax return next year, you may lessen your overall tax bill and reduce the actual cost of the gift.

Example:

Let’s say that Duke’s most loyal alumna, Jane Blu Deville, contributes $10,000 to Duke University in 2016. When completing her 2016 income tax return next spring, she’ll have an opportunity to claim an income tax deduction of $10,000. If she pays federal taxes at a top rate of 28%, she’ll save $2,800 in taxes ($10,000 x 28% = $2,800).  So, in a sense, it will cost her only $7,200 to make the $10,000 gift.

2.  Publicly traded stock and real estate

There are many other ways to make a gift beyond donating cash or writing a check to a charity. For example, you may consider donating appreciated investment assets you purchased many years ago. The most common types are publicly traded stocks and real estate.

Publicly traded stock and real estate are popular gift assets because you may be able to claim an income tax deduction equal to the full market value of these assets and avoid the capital gains tax on the profit that’s embedded in them. Plus you’re helping a charity about which you care deeply, so it’s a triple win!

Please note that, in order to claim any income tax deduction, you must itemize deductions on your federal income tax return and you may have to retain specific documentation about your gift. In addition, the charity you’re supporting must be qualified by the IRS to receive tax-deductible donations and there may be limits to how much you can deduct in charitable gifts in any given year.  Some states provide a charitable deduction against state income tax as well and claiming a deduction related to a gift of investment assets like real estate can be complex. Please consult with your tax advisor to be sure you understand how charitable gifts would affect your specific tax situation.

3.  Charitable IRA Rollover

If you are 70 ½ or older, you may be able to transfer up to $100,000 directly from an individual retirement account (IRA) to a qualified charity each year and avoid the income on your tax return. This transfer may also count toward your required minimum distribution for the year. You would not receive a charitable income tax deduction for this transfer because you did not recognize the income. Please visit our website for more information about the charitable IRA rollover.

TAGS: charitable IRA rollovers retirement planning

About the author

Gift Planning

giftplanning@duke.edu

Duke University’s Office of Gift Planning specializes in charitable gift planning for estates, charitable trusts and annuities, and other complex current and future gift plans.

For more information, please contact the Duke University Office of Gift Planning at 919-681-0464 or giftplanning@duke.edu.