If you give to charity or plan to start giving, one of your goals in giving may be to reduce your taxable estate. United States tax laws incentivize charitable giving to some types of organizations by offering deductions.
How Do Charitable Deductions Work?
Tax laws in the United States allow you to deduct charitable contributions from your overall taxable income. In other words, you can reduce the amount of income on which the IRS actually assesses a tax by taking the deductions. (In contrast, credits apply after the IRS assesses your applicable tax rate.) Charitable donations or contributions to a wide variety of organizations qualify for the deduction:
- 501(c)(3) charitable organizations, which include many foundations, funds, community chests, and other groups
- Religious organizations
- War veterans’ organizations
- Fraternal societies, if the contribution is used for charitable purposes
- Other groups, including U.S. states
If you plan to deduct charitable contributions, keep track of the money you give during the year. Even though you will not need to pay gift taxes on your contributions, you will need to list them out on your taxes to get the deductions.
How Do Charitable Contributions Reduce Your Taxable Estate?
Again, charitable contributions allow you to take deductions, rather than paying gift tax on the amounts you donate. By giving money to someone else, you decrease the amount of cash in your estate. Whether you give during your lifetime or in your will, you also decrease the overall basis for estate taxes. If you have a larger estate, giving can bring your estate’s value below the $11.18 million estate tax exemption. This could save the estate a lot of money and protect your planned bequests to relatives.
You can make charitable contributions outright or through structures such as trusts or donor-advised funds. To get started with charitable giving, speak to an estate planning lawyer in your area.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.