When you make gifts to charity during your lifetime, you benefit both the charitable organizations and your estate. Not only can you receive tax deductions, you also reduce the size of your taxable estate.
What Is a Direct Lifetime Gift to Charity?
Giving directly to a 501(c)(3) nonprofit or other qualified charitable organization is a lifetime gift to charity. Anyone can make this kind of gift in any amount – in fact, donations can be in the form of cash, supplies, real estate, or other items that benefit the organization. Making a lifetime gift alternatively could involve starting a foundation, setting up a donor advised fund, or some other method of giving over time.
Available Tax Deduction
“501(c)(3)” refers to the section of the tax code that permits tax deductions if you made donations to qualified nonprofits during that tax year. You need to keep track of the amount and type of your donations to receive the deduction. In addition, you usually will receive a tax benefit from the deduction only if you itemize your deductions on your tax return. Still, many people take advantage of this deduction to reduce their overall tax liability.
Effect on Taxable Estate and Estate Tax Liability
In addition to the effect on yearly tax liability, lifetime gifts also benefit your estate. The IRS assesses estate taxes on estates of deceased people that are valued above a certain amount (currently about $11.2 million). Estate taxes are very expensive and can decrease the amounts that designated heirs actually inherit from an estate. As a result, decreasing the size of your potentially taxable estate during your lifetime can reduce estate tax liability sometime in the future.
To elaborate, people with substantial or particularly valuable assets can take advantage of lifetime giving. By making gifts to the nonprofits or charitable organizations during their lives, they reduce the total value of their assets. This translates to a smaller estate when it comes time to assess estate taxes. If the gifts lower the estate value enough, no estate taxes will be due. Generosity during your lifetime could also be smart estate planning for the future.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.