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3 Ways to Help Others AND Lower Your Taxes

Posted October 3, 2017 by in Blog Post

With the recent weather events of Harvey and Irma, it’s become much more evident that we all need a helping hand at times. Most people do not donate to charitable causes purely for the tax break, but if the government gives you a break, you might as well take advantage of it. Here are three tax efficient strategies to help others:

  • Donor advised funds (DAF) – These are investment accounts (Vanguard, Schwab, Fidelity) you fund with deductible donations. Once in the account, you can invest the money in a mix of mutual funds to suit your risk tolerance. Donations can be then made to any 501(c)(3) organization with a few clicks of the mouse. You don’t need to send checks and the fund keeps a complete record of contributions and donations.
  • Donating highly appreciated securities – This is one of my favorite techniques. If you own securities that have appreciated since you bought them (stocks, bonds, mutual funds, ETF’s), you can donate them directly to a charity and take a full deduction for the current value, even though you may have paid a lot less for them. The charity can then sell them at the current value tax free. For example, if you bought 100 shares of XYZ for $10 per share ($1,000) and they are now worth $50 per share ($5,000), you can donate them to the charity and take a deduction of $5,000 ($50 x 100) even though your cost basis was $1,000 ($10 x $100). The charity sells them for $5,000 tax free.
  • Donating your required minimum distribution (RMD) to a charity – If you’re over 70 ½ years old, you are most likely required to take a minimum amount from your 401k or IRA so the IRA can collect taxes. If you send your RMD directly to a charity, the IRS allows you to do so without owing taxes on the distribution. The distribution needs to be made directly to the charity, but it can be a lot easier than taking your RMD, paying taxes on it, then donating cash to a charity followed by a deduction.

Be sure to check with your tax advisor regarding limitations and rules.

If you have any questions on these strategies, or any other financial planning topic, contact Randy Kratz, CFP® at

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