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Optimize your charitable planning for maximum tax savings
Tax strategies are ways to use the provisions of the tax code to make the smartest financial decisions—often with an eye to minimizing taxes. Understanding the tax strategies related to charitable contributions can help you decide how much to give, what asset to give and when to give, so you can provide the maximum amount to charity—and receive the maximum tax advantages for yourself.
According to the report Giving USA, U.S. families and individuals give an average of more than $1 billion to charity every day—a major force for addressing important needs in our communities. The value of giving is also recognized by the U.S. tax code, which provides a variety of tax incentives to support those who wish to use their funds to do good. By using the proper tax planning strategies, charitable contributions can reduce three kinds of federal taxes: income, capital gains and estate taxes.
By understanding these key strategies, donors may be able to give more and provide even greater benefits to the causes they care about.
Many people know they can deduct donations to charity from their income taxes, but increasing your knowledge of tax planning strategies can maximize your giving impact.
For example, did you know that:
Charitable tax strategies related to income, capital gains and estate taxes all have one thing in common: their value to you goes up with your tax bracket or estate value. Under the tax code, those with higher incomes are taxed progressively at a higher rate. The current top federal tax rate is 37 percent. Similarly, those in the top tax bracket also pay the top rate on long-term capital gains—20 percent. Those in lower brackets will pay 15 percent or nothing at all.
In practical terms, this means that the higher your tax bracket, the more valuable your deduction. It also means a strategic approach to taxes and giving involves looking at your tax rate if you expect any variability. For example, it can make sense to give more while you’re working if your tax bracket is higher than it will be in retirement—perhaps by contributing to a donor-advised fund that can be used through retirement to support the charities of your choice.
Since 1991, we have been helping donors like you support their favorite charities in smarter ways. We can help you explore the different charitable vehicles available and explain how you can complement and maximize your current giving strategy with a donor-advised fund. Join over 200,000 donors who choose Fidelity Charitable to make their giving simple and more effective.