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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

The Benefits of Generosity

Having a generous spirit, and being generous with our financial resources, time, and talents, can have many benefits. Given the recent tragic tornado event that took place in Arkansas and witnessing the outpouring of generosity by our fellow Arkansans, this seemed a fitting time to discuss these benefits, and to point out that, while giving of yourself and your resources is critically important at times like these, during the holidays when need is so keenly felt, etc., finding ways to be generous year-round really adds much value and health to your life!

While the topic of this column is normally centered around the financial aspects of life (and we'll get to that), I want to start with really what I consider of most importance – how giving of yourself results in personal growth, contentment and even connection with those around you. 

Being generous, charitable if you will, is so uplifting and beneficial to your emotional well-being. We're literally hardwired (by God in my view) to be giving people and to experience joy from doing so. It just makes us feel better! Don't just take my word for it. There are many academic studies confirming that those who give to others are more joyous and content than those who do not. It enhances life, not detracts from it, giving it greater meaning.

Giving of your time and talents, i.e., serving and volunteering, often results in making new connections and friends (in business we call this networking). Some new connections may be purely personal – who knows the new best friend you may meet – while others might benefit you in other ways, such as meeting business contacts that result in new business or perhaps even a new job or career opportunity. 

Sometimes, serving means meeting a need such as during the current tornado relief effort, where labor is critically needed to help clean up, sort, and distribute food and supplies, and other such "boots on the ground" activities. Volunteering can also involve doing something you are really good at or are pursuing a career in, putting your knowledge and expertise to use for other's good. For example, in my line of work, schools love it when CPAs make themselves available to speak to students about financial issues and train them in financial literacy, as well as how one might pursue a career in the field. 

The personal and health benefits of being generous are, in my view, more than enough incentive to give. I would be remiss, however, if I didn't mention the financial benefits as well, namely, the tax benefits that you may receive from your giving.

The most obvious, and most frequently employed, form of charity is the straight up donation of cold hard cash. For those who file federal and/or state tax returns and itemize their deductions, such donations are deductible from your income in arriving at taxable income. In any one year, you can deduct monetary donations up to 60% of your adjusted gross income, or AGI. Not to worry, any excess above 60% isn't lost, just carried over for use in a future year.

Other assets, such as stocks and other financial securities, and even real estate can be donated as well. In the case of such assets that have appreciated in value, you get a special tax bonus if you have held them more than one year, by being able to deduct the full fair market value of these assets at the time of donation without having to pay income tax on any increase in the value during the time you owned it. 

If you had sold the assets and donated the money instead, you would be on the hook for any income tax on the gain. One caveat here, instead of being limited to 60% of AGI like cash, this deduction is limited to only 30% of AGI in any given year, but again you can carry over the excess. 

Another giving tool for those over age 70.5 is what is known as an IRA Qualified Charitable Distribution. This is where you instruct your IRA custodian to make donations directly from your IRA. This can save hundreds or even thousands in taxes, especially for those who don't otherwise itemize deductions. This is because the QCD is never included in your taxable income, essentially converting it into a tax deduction. For those who are subject to IRA Required Minimum Distribution rules, a QCD also counts towards satisfying that requirement.

Tax deductions are also available for out-of-pocket costs you incur on behalf of charity and for vehicle mileage driven for charitable causes. 

The long and short of it this – any form of philanthropy, be it financial or through service, makes the world a better place and your life a better, well-lived one.

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