After paying taxes on April 18, many metro Atlanta business owners and corporate executives had one big question: How can I lower my tax bill next year?
There are several ways to accomplish this goal, but one is easier than you think. Most business owners, corporate executives and managers usually make tax-deductible contributions to one or more charitable organizations each year. But instead of developing a long-term strategy for their charitable giving, they often write a check in haste during the waning days of December to receive a tax deduction the following April.
Here’s a better solution: Develop and implement a long-term plan now for charitable giving for 2016 and beyond. Taking action now will help avoid the financial pain that can linger for weeks after taxes have been paid a year from now.
A long-term charitable giving plan is both personally and financially rewarding. As a wealth advisor, I see the benefits these plans provide to various health care, faith-based, education, anti-poverty and other nonprofit organizations throughout metro Atlanta.
Here are some steps you can take to put a charitable giving plan into action now:
• Make a list of the causes or charities that interest you and develop a charitable giving budget.
Don’t limit your choices; if there are several causes or organizations you would like to help, put them on your list. Once you have a list, determine how much money is available for charitable giving. Take the time to develop a long-term financial plan, including retirement, to determine the surplus funds available in your budget.
• Spread your charitable donations for 2016 over the remainder of the year.
Make donations regularly over the course of the year to spread out the impact on cash flow. Additionally, by making regular charitable contributions, you may end up donating more than originally planned, which results in a higher deduction.
• Establish a donor advised fund.
This financial tool enables individuals to make charitable donations to multiple organizations through your own “mini-private foundation.” Contributions to this fund also simplify record-keeping; there is only one tax receipt for all of your donations.
I often establish a donor-advised fund to pre-fund several years of charitable gifts during years when a person’s income is significantly higher than usual, such as when a business has been sold or stock options have been exercised. The fund meets the need for a substantially larger deduction and it enables a person to make grants to charities when they choose. Finally, there are no annual minimum grant requirements or tax filings as there are with a private foundation.
• Consider donating assets that have appreciated over time.
Donating appreciated assets, which include real estate and shares of a private company, is one of the most tax-efficient ways to make charitable contributions. Stocks, bonds or mutual funds that have grown in value and have been held for more than one year are the most common appreciated assets that people contribute to charities.
Once you donate these assets, a charity will often sell them; in most of these cases, no capital gain tax is owed. The entire value of the asset is available to the charity or is available for you to grant out of your donor advised fund. Additionally, you are able to take a deduction for the full fair market value of the asset. As with any tax-saving strategy, individuals should consult with their tax advisor to coordinate with any plans already in place.
Charlie Jordan is a partner and wealth advisor at Brightworth, an Atlanta wealth management firm that manages more than $1.2 billion in assets. Jordan is also president of the Georgia Planned Giving Council, a professional association for promoting and advancing philanthropic planning in Georgia.
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