Cut your 2016 taxes, support your favorite causes

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Make the most of your tax situation with retirement and estate planning

There are a few weeks left in 2016, and there’s still time to ensure that you have created the most ideal tax situation for yourself or your business.

One of the most-utilized tax deductions is charitable donations, but what many people may not know is that you can participate in charitable giving in more ways than simply writing a check.

Building charitable giving into your retirement and estate plans can help you generate added income, reduce estate taxes, and create a meaningful legacy for you and your family. Many individuals and families have done this by establishing a deferred endowment fund through The Dayton Foundation.

The Dayton Foundation is a 95-year-old community foundation that can help you save on taxes and make the most of your charitable giving.

A deferred fund is a simple, tax-efficient way to provide lasting support for the charities you care about the most. Your named fund is invested over time, with the earnings used to award grants according to your wishes.

There are a number of options for setting up a gift for your deferred fund including:

• Make an outright charitable bequest in your will. A bequest is the easiest and most direct way to plan a future gift. It can be in the form of a dollar amount, property, or a percentage or the residual of your estate.
• Designate The Dayton Foundation as the beneficiary of an Individual Retirement Account (IRA) or retirement plan. Because they are more heavily taxed than other estate assets, retirement plans make an ideal gift. By allocating retirement dollars to a 501(c)(3), your money will not be taxed when it is given to the charity you designate.
• Transfer ownership of a life insurance policy. Life insurance is a flexible-planning tool that can provide a greater tax savings than leaving it in your estate, where it is subject to estate taxes. At the time of the gift, you receive a charitable deduction for the cash value of the policy, and any premium payments are considered tax-deductible.
• Create a life income gift. A life income plan through The Dayton Foundation, such as a charitable trust or annuity, can provide retirement income for the rest of your life, reduce capital gains and estate taxes, and build a charitable fund.
• Gift your home, farm or vacation property (life estate remainder interest). You can continue to enjoy the use of your property for your lifetime, while benefiting from an immediate charitable tax deduction.

Deferred giving can assist in your estate planning, but there are other tax-wise options you can take advantage of now.

Under current law, an individual who is 70½ or older must withdraw an annual required minimum distribution (RMD) from his or her IRA, which is taxed by the by the government upon withdrawal.

If an individual chooses to transfer some, or all, of their minimum distribution to an IRA designated fund with The Dayton Foundation, it will not be taxed upon withdrawal and distribution.

Lynn Burns, owner of Burns Tax Consulting LLC in Dayton, provides an example.

“If someone who is in a 28 percent federal tax bracket and a three percent Ohio tax bracket wishes to make a $10,000 contribution to charity and is required to take at least a $10,000 RMD, the donor would benefit by transferring the $10,000 directly to a charitable fund. Because the direct transfer is not included in his or her adjusted gross income, Ohio taxes would be decreased by $300. Reducing adjusted gross income also could reduce the amount of social security subject to federal income taxes, increase the amount of rental losses an individual could deduct, and reduce the phase out of itemized deductions. If the donor normally does not itemize deductions, additional savings would result.”

There are several types of charitable funds at The Dayton Foundation which a donor can directly gift an IRA charitable rollover, including a scholarship fund; a field-of-interest fund (The Dayton Foundation will allocate the gift to a 501(c)(3) that aligns with the donor’s interest, e.g. veterans, children, animals, etc.); or a community impact endowment, in which The Dayton Foundation determines which charities will be awarded grants based on greatest community needs at any point in time.

“We receive millions of dollars in grant requests every year,” says Michelle Lovely, vice president of Development for The Dayton Foundation. “The community impact endowment and field-of-interest funds allow us to continue to make a difference in the lives and organizations in our region.”

A deferred fund, IRA designated fund, as well as other charitable funds which can optimize your tax situation, all can be opened with The Dayton Foundation through December 31 to receive a 2016 charitable deduction.

“If you fail to take your required minimum distribution, you can be subject to a tax penalty,” says Burns.

“Check with your bank or investment advisor to confirm whether or not you have taken your minimum distribution for 2016,” says Lovely. “If you haven’t, transferring it to establish a charitable fund with The Dayton Foundation is a great option.”

Creating a plan for your charitable giving doesn’t need to be complex. The Dayton Foundation can help you and your financial advisor or estate planner review options for establishing a fund that will fit within your financial planning strategies.

To further discuss your estate planning or charitable intent, contact Michelle Lovely at The Dayton Foundation at (937) 225-9948.