Giving away your tax liability doesn’t feel good, it feels great!
Personally, I serve on several charitable boards for organizations that do phenomenal things in our community. I have found that being a CPA, or a “walking calculator,” is a skill that boards of directors need.
As a shameless plug, two of my organizations are the YMCA of Snohomish County, and All God’s Children International, which provides care primarily for orphans with disabilities in developing countries, “the least of us.”
Whereas board members for corporations get paid, board members for non-profits are expected to donate money to the cause. I always chuckle when someone asks me how much I get paid to sit on these boards, when the reality is that most board members I work with donate thousands of dollars each year, not the other way around. The rewards are not financial; they’re much more than can be assigned a dollar value.
Now, imagine giving something besides time and money away, namely your tax liability from your retirement accounts. Under the current tax law, taxpayers are allowed to directly gift money from their retirement accounts to a charity and thereby avoid the tax liability on that distribution.
You might ask why this matters, since donations are already deductible. Can’t you just take a distribution from your retirement account and then make an offsetting tax deductible donation?
The answer is that most people 70 years old and older who don’t need all of their retirement money for living expenses already have their houses paid off. This would mean that they may not have enough to itemize their deductions in the first place, making the direct donation produce a higher tax savings.
The charity pays no tax on the retirement money, so if you are so inclined, make this kind of gift and make a difference for someone less fortunate than yourself.
Another way to save on taxes while benefiting a charity is to donate appreciated property or stocks. For example, let’s say you own $100,000 of Microsoft that you bought in the mid-1980s. If you sold the stock, you would owe about $15,000 in taxes,20 with the net of $85,000 going to the charity. Had you gifted the stock directly to the charity, all $100,000 could go to fund its work, with no tax liability and a full $100,000 charitable deduction for you (okay, there are certain limitations outside the scope of this book).
I think you’ll agree that saving on income taxes doesn’t feel as good as giving to those less fortunate, but it might be a distant second!
*Federal tax, since state and local vary.