North Carolina residents often donate to charities they care about. Charitable donations are a positive way to spend your hard-earned money by making a valuable contribution to a higher cause, and you may also receive tax advantages for your donations.
Before making those charitable donations, consider these tips, which can help you maximize your tax benefits. You will reap the financial rewards, while at the same time supporting the issues you care about.
Using your income and assets
Most people make small annual donations to various charities. However, if your income tends to fluctuate from year to year, it might be better to combine small yearly donations into one large donation during a year you had a higher than usual income. This will allow you to itemize tax deductions for the higher income year and use the standard deductions during your average or lower-income years.
You may already know that selling a highly valued asset means paying a capital gains tax for the year the asset is sold. When you are thinking about selling assets, consider donating them to charity instead.
Almost any asset can be sold to charity. You can donate real or personal property, such as a house or a car, or financial assets such as cash or securities.
When you donate an asset to charity, you receive two tax benefits. Not only can you avoid paying the capital gains tax but you may also potentially deduct the fair market value of the asset on your tax returns.
Rolling over an IRA
There are also ways to use charitable contributions to minimize your tax liability after you retire. If you have a traditional IRA account, you must take specific deductions from it after age 72. However, you may already be financially comfortable without these deductions and can roll over the IRA deductions to a charity, lowering your taxable income.
These are just a few ways that charitable giving can provide tax advantages during your lifetime. Everyone’s financial situation is different, and before implementing these strategies, it may help to speak with an experienced estate planning attorney.