LEARN TO GIVE WISELY

You want to give back.
We want to help you give wisely.

You give because you want to have a positive impact on the causes you care about, not because you are looking for a tax break. But did you know there are some tax-wise ways to give that will provide maximum benefit to your favorite charities while providing tax benefits to you?

Many people, just like you, may experience an unexpected or planned taxable event during their lifetime. If this happens to you, let us show you how to use tax-wise giving to meet your charitable goals while reducing taxes. Taxable events or transactions might include:

1. Receiving dividends on a stock
2. Selling an asset for a gain (business, real estate, stock)
3. Withdrawing from a retirement plan
4. Receiving an inheritance
5. Planning your estate

Click on the links below to learn about a variety of tax-wise ways to give. Please feel free to contact Foundation staff with any questions.

Note: The information contained on this website is for general informational purposes only and is not intended to serve as legal, tax, or other financial advice. Because each individual’s legal, tax, and financial situation is different, you are advised to consult with your own attorney, accountant, and/or other advisor regarding your specific situation.

Types of Gifts

  • Gifts of Cash

  • Gifts of Appreciated Stock

  • Non-Cash Assets such as Real Estate

With an increase in the standard deduction, you may no longer find yourself eligible to itemize your tax deductions; that includes your gifts to charity. However, bundling may be an option. When you bundle, you combine two or more years’ worth of giving into one year. A great option to help you accomplish this is to use a donor advised fund (DAF).

When you use a DAF to bundle, you make one gift, receive one receipt for tax purposes, and retain the right to distribute your gifts to multiple charities over multiple years. And if you use an appreciated asset you’ve held for a year or more, you will enjoy the added benefit of avoiding capital gains tax.

Example:

  • Contribute $20,000 to your Donor Advised Fund. Receive a $20,000 tax deduction in the year you make the gift.
  • Watch your money grow tax-free as long as it remains in the fund.
  • Make grant requests to your favorite charities on a schedule you choose.

When you give long-term appreciated asset to charity, such as stocks, mutual fund shares, or real estate, you are making a wise gift. You avoid paying capital; you will be eligible to receive an income tax deduction for the full fair-market-value of the stock at the time of the gift; and your charity has access to the full amount of your gift!

Ex. You want to make a gift of $10,000 to charity. You own stock purchased several years ago for $2,000. Today it is worth $10,000. What are your choices? Write a check for $10,000, sell your stock and donate the proceeds, or transfer the stock directly to the charity.

  Donate appreciated stock directly to charity Donate $10,000 cash Sell securities & donate proceeds
Charitable deduction $10,000 $10,000 $10,000
Ordinary income savings
(assumes 35% rate)		 $3,500 saved $3,500 saved $3,500 saved
Capital gains tax
(assumes 15% tax rate on $8,000 gain)		 $1,200 saved N/A $1,200 paid
Net Tax Savings $4,700 $3,500 $2,300
Amount to Charity Net Taxes $10,000 $10,000 $7,700

Appreciated assets are a great way to contribute to a donor advised fund. It allows you to make one transaction for tax purposes while allowing you to direct multiple gifts to charities over months or even years.

If you are age 70 ½ or older with an IRA, consider using it to make your gifts to charity. Known as a qualified charitable distribution (QCD), this gift allows you to contribute up to $100,000 per year directly to charity and is treated as a nontaxable distribution. In addition, if you are at the age of required minimum distributions (RMD), your gifts to charity will help meet that minimum.

It is important to note that you cannot use a QCD to start or add to a donor advised fund. However, you can use it to make a gift to a designated, field of Interest or unrestricted fund held by a community foundation such as the Winona Community Foundation.

With fewer than 0.1% of estates predicted to owe estate taxes in 2020, should you be concerned that your heirs might owe taxes on their inheritance? The answer is a resounding, “yes.” But it’s not estate taxes they’ll pay, it’s income taxes. If you pass down a tax-deferred asset such as retirement accounts, your heirs will be subject to income taxes based upon payments from those accounts and their current tax situation. New legislation makes it more difficult for your heirs to stretch those payments over time to reduce the tax implications. It is possible to lose up to 60% of the account assets when everything is taken into consideration.

If you have already planned to benefit charity in your will or through a life insurance policy, consider using all or a portion of your retirement assets instead. By naming a charity or charities as a beneficiary of your retirement account, you are giving a taxable asset to a tax-exempt entity and your heirs the nontaxable asset.

If you are concerned about providing your heirs with income from your retirement assets, a clever alternative is to direct those funds to a charitable remainder trust naming your heirs as income beneficiaries. This is a unique estate planning tool that requires the assistance of a qualified advisor but one that has significant benefits to both your heirs and the charities you care about.

The Foundation has standard language available for individuals who want to gift through their will.

If you like to give to charity, you hold CDs, a money market, or stock, and are in need of a steady income stream today or at a later date, a split-interest gift, may be an excellent solution.

What exactly is a split interest gift? It is one where you make a gift to charity and in exchange the charity provides you with an income payment over your lifetime. Examples of split-interest gifts include Charitable Gift Annuities, Charitable Remainder Trusts, or Charitable Lead Trusts among others.

Charitable Gift Annuities

A charitable gift annuity is a gift made to a charity that in turn pays you guaranteed, predictable, tax-favored payments for life. The income amount is determined using nationally established rates based upon your age at the time the gift is made and is generally more than traditional vehicles such as money markets and CDs. If you have an asset that is generating little to no income, and you would like to make a gift to charity, a charitable gift annuity may be right for you.

Charitable Remainder Trusts

A charitable remainder trust (CRT) is a tax-exempt, irrevocable trust. It is designed to generate income for a designated beneficiary, such as you or a loved one, and benefit charity. You transfer assets into the trust, receive a partial tax deduction for the transfer in the year it is made, and the beneficiary receives income for a term of years, not to exceed twenty year, or for the life of the beneficiary. At the end of the term, the remainder goes to one or more charities specified by the trust document.

You have a lot of options when establishing a CRT. Options include naming both the beneficiaries of the income and the charitable remainder, the term of the CRT, the ability to change the charitable beneficiary, the choice to receive a fixed dollar amount (annuity) or fixed percent, the frequency of payments, and more. That is why it is essential you engage an attorney to draft documents.

CRTs can serve as a wonderful estate planning tool. They provide a strategic way to manage the transfer of tax-deferred assets such as retirement funds. They can reduce estate taxes, and they can achieve your charitable goals.