Giving to charity is one of the most selfless things you can do with your money. While giving money to charity is a fantastic way to give back, not all charitable gifts are created equal. Some gifts have higher tax benefits than others and provide more flexibility down the road.
We help many of our generous clients facilitate their charitable giving intentionally and purposefully. When you give strategically, you can amplify the value and power of your gift while receiving tax benefits.
But how can you make that happen? Here are five creative charitable giving strategies to consider.
1. Still Working? See If Your Employer Chips In
If you’re still working, there might be a way to encourage them to contribute to causes important to you. Many employers will match employee contributions, sometimes up to a specific dollar amount, like $500 or $1000 annually. Doing so boosts the company’s philanthropic efforts and is a great way to get money to the people who need it most.
So if you've been looking for ways to give back, look through your workplace benefits and see what they offer in terms of matching donations. If they have such a program, send an email or card explaining why this is important to you—they may be more than happy to chip in.
If they aren’t willing or able to make a financial contribution, there are other ways to get involved, like supporting your charitable efforts via extra paid time off for volunteering and helping to organize company volunteer events.
If you're looking for additional ways to give back, sometimes the best thing you can do is be as selfless as possible. If you see someone struggling, offer them a hand. If a friend has been through tough times lately, take them out for coffee or lunch and offer a listening and supportive ear.
2. Donate Appreciated Assets
While writing a check is always appreciated, you're giving after-tax money. What if you could give before the IRS takes a cut?
Consider donating highly appreciated assets, like stocks. With this approach, you don't have to sell it and realize a significant capital gain. Instead, you can donate it to the charity of your choice.
The charity won't have to pay tax on the gain, so you ultimately give more than if you sold the asset. This is a great way to strategically offset gains in a high-income year—maybe you sold a vacation home or realized a lot of investment profits—and support causes you care about.
Making donating highly appreciated securities a regular part of your giving strategy can be financially and personally beneficial.
3. If You're At Least 70.5, Try A Qualified Charitable Distribution
Qualified charitable distributions enable you to donate funds from your IRA to a qualified public charity. You can give up to $100,000 per individual per year, meaning each spouse could give $100k from their IRA, totaling $200k.
QCDs are an excellent way to manage your income tax. You can't claim an additional charitable deduction with a QCD, making it ideal for those who take the standard deduction (which is most people, given the high thresholds).
Retirees can leverage QCDs to help mitigate their taxable income. How so? Remember, you must start taking Required Minimum Distributions at 72 from IRA. If you don't need all of the money from the RMDs, you can donate it to charity via a QCD.
Doing so helps you maximize your tax bracket while amplifying your gift (you don't pay taxes on the money you gift). This process must be a custodian to charity directly. If you remove the funds and donate retroactively, you'll pay tax.
It’s also important to note that generally, you can’t make a Qualified Charitable Distribution (QCD) to private foundations, split-interest charitable trusts, or supporting organizations.
4. Make An Ongoing Gift With A Donor-Advised Fund
Another underrated way to give money to charity is through a donor-advised fund (DAF). A DAF has two core benefits: you get an immediate tax deduction when you donate (up to 30% of AGI) and can recommend grants of those assets to selected charities whenever you'd like.
So, if you donate to a DAF this year, you can take the deduction and let the money grow tax-free. Then, you can contact your custodian to transfer all or some of the money in the account to a qualified charity whenever you see fit. This allows you to “pre-fund” your charitable efforts over time.
Essentially, a DAF works as an investment vehicle where the funds grow tax-free while inside the account. Then, when it comes time for you to recommend grants from your fund, there are no capital gains taxes on those withdrawals—if you donate assets that are worth more than what you paid for them, you typically can deduct the current market value of the asset rather than what you originally paid for the asset.
Understand the “Immediate” Tax Deduction—How Much Can You Deduct?
As soon as you make a charitable contribution, you are eligible for an immediate tax deduction, just as you would by donating to another public charity, like your local homeless shelter or food pantry. But some donations could make you eligible for additional benefits. You can carry excess deductions over for five years.
- Cash donations: If you donate cash, you're generally eligible for an income tax deduction of up to 60 percent of your adjusted gross income.
- Donations of long-term appreciated assets directly to charity: Instead of liquidating the asset and donating the proceeds—can help maximize your tax benefit and the overall amount you have to grant to charity.
- Invest your donation for tax-free growth; Once you funded your donor-advised fund, you may recommend an investment strategy for your account—potentially growing your account and providing you with more dollars to grant to charity.
But there are downsides. Once you donate to the DAF, you can't get it back. To take advantage of the tax benefit, you have to itemize, which can be challenging (you may consider bunching to help).
With a donor-advised fund, you generally can’t:
- Support organizations other than IRS-qualified, 501(c)(3) organizations, such as political groups or crowdfunding campaigns. Private foundations are also ineligible to receive donor-advised fund grants.
- Recommend grants that may provide a personal benefit—such as school tuition for a grandchild or tickets to a charity event that you will attend because you would receive something of personal value from these grants.
Make A Sustainable Charitable Giving Plan
Creating a sustainable charitable giving plan can be helpful when you're trying to figure out how to give back, ensuring your donations go toward the causes and organizations that matter most to you—and not just one-time gifts.
We call this "sustainable charitable giving" because it allows for long-term support for important causes and organizations in your life.
To start building your sustainable charitable giving plan:
- Determine how much money or time you want to give annually (e.g., $1,000) or quarterly (e.g., $250), etc.
- Identify what is most important to you and ask those closest around you if they have ideas on which organizations they would like your support/donations directed towards.
- Give and volunteer as a family. This is not only a great way for grandparents and grandkids to spend time together, but it’s also good for legacy building.
Identify one or two specific organizations you would like to support. Then, decide how you want to give (time, talents, and resources) on an ongoing basis. This helps you develop a personal connection, form relationships, and find more value than blindly donating to a charity.
Find New Ways To Give Back And Help Your Favorite Causes Thrive
Charitable giving is a great way to make a difference in the world and support the causes that matter to you. But it can also be complicated, especially if you're not sure how much money you have available to give away each year or what type of gift will have the biggest impact.
We can help you create a plan tailored to your unique situation. Contact us to discuss your options in more detail.