<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->

Should I make a charitable donation to lower my tax liability?

I will be taking out my first RMD this year; unfortunately that will bump me up to a higher tax bracket. Would it be wise for me to make a charitable donation to my local university in return for yearly payments for life while taking a tax deduction? Or should I establish a charitable trust or something similar to that?

Estate Planning, Taxes, Tax Deductions / Credits
Answers
Sort By:
Most Helpful
last month

There are a number of strategies around chritable giving that can help reduce your tax bracket.  Charitable donations can help, but only if charitable donations and other itemised deductions are greater than your standard deduction. One way increase charitable donations is to "bunch" your charitable donations from multiple years into one tax year. Although trusts can be used, a Donor Advised Fund (DAF) is a vehicle that can be used to receive the charitable donations in the current tax year that can be distributed to charities over time. Most Donor Advised Funds have a very comprehensive list of eligible charities that you can select from.

Another option is to make a donation to a charity using a qualified charitable distribution (QCD) from your IRA. QCDs made from your IRA are exempt from taxation up to $100,000 as long as the distribution comes from a qualified account and is donated directly to a charity that meets the IRS requriements. Qualified Charitable Distributions cannot be made to a Donor Advised Fund (DAF).

There number of factors to consider:  What is your tax bracket, did you have a standard deduction or itemized deductions, will you have enough funds to last through retirement, do you want to leave a legacy to your hiers.  Seeking the assistance of a tax of financial planning professional to run through the scenarios for your specific situation can help you optimize the outcome that is best for you.

last month
last month
last month
last month