Nonprofit Organizations Tips

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What are the tax implications of making a bequest?

A Gift Today and a Bequest

Are you considering leaving money to a charity or charities in your will? This can be a great way to leave a legacy while also saving your heirs quite a bit in estate taxes by reducing the size of your taxable estate. One thing to keep in mind, however, is that a gift today also automatically reduces your estate.

If your desire to reduce your estate by leaving money to a charity in your will is keeping you from making donations today, remember that you can also gain charitable tax benefits by making the gift now. If you are more concerned with saving money for your children or other heirs, a bequest in your will may be the best option. If you are in a financial situation that allows you to give now and in your will, you can realize tax benefits for yourself now and your heirs later.

How can I plan to support my favorite causes through a bequest?

Plan Your Giving Strategy

Planned giving is a career focus for many fundraisers, but it is also an activity that any individual with the desire to strategically donate to charity during his lifetime and beyond should consider undertaking.

Planned giving integrates sound personal, financial, and estate-planning concepts with your plans for lifetime or testamentary giving. A planned gift has tax implications and is often transmitted through a legal document, such as a will or a trust.

Where can I get more information about planned giving?

Estate Planning and Planned Giving

If you are in the position where you are able to make large gifts and you are seeking to do so with to the greatest tax advantage, you should really consult a professional accountant, attorney and/or financial planner.

An attorney will be able to create a suite of options and a strategic plan that can help you help others and yourself in this life, and as your legacy.

What does the term "nonprofit organization" refer to?

Nonprofit Organizations

Nonprofit organizations or a Not For Profit Organization includes charitable organizations, churches and religious organizations, political organizations, and private foundations. Nonprofit organizations that qualify as an IRS 501(c)(3) organizations are both tax exempt and can accept donations that are tax deductible, and include organizations established for purposes:

"charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening of neighborhood tensions; elimination of prejudice and discrimination; defense of human and civil rights secured by law; and combating community deterioration and juvenile delinquency."

501(c)(3) organizations must not be operated for the benefit of any private interests, and arte limited in the amount of political activity and lobbying in which they can engage. Do note that while political organizations, such as parties, committees, and candidates, are "nonprofit" and "tax exempt," they are not classified as 501(c)(3) organizations and therefore different tax standards and codes apply.

*See IRS Publication 78 for a listing of all 501(c)(3) eligible institutions.

What are the tax implications of making a bequest?

Save Income and Estate Taxes

If you want to give to charity from your pension plan account or IRA, you can save income and estate tax by making these gifts through your will. Even after your death, the person or who receives the pension or IRA money has to pay income taxes on that money unless the recipient is a charity.

If you have already provided well for family members, a posthumous gift of a pension or IRA to a charity both reduces your estate and helps reduce estate taxes and avoids the income tax that your heirs would have to pay upon receiving these accounts. This is, of course, a simplification of the various issues related to planned giving and tax benefits.

*Be sure to get personalized and professional advice from someone sophisticated in this area.

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