Smart Charitable Giving Strategies - Adviser Investments

Smart Charitable Giving Strategies

November 19, 2019

Last week, we talked about the combined benefits of supporting a cause you care about through charitable giving while reducing your tax bill at the same time. We also discussed a strategy of “bunching” two or three years of charitable gifts to increase your tax savings.

This week, we’re going to consider four different and smart ways to give charitably.

  1. Direct Cash Donations. Giving cash is often the easiest way to make a charitable contribution, both for you and the charitable organization you’re giving to. From a tax standpoint, cash donations can be deducted from your adjusted gross income (AGI)—up to a limit of 60% of your AGI each year. But in some cases, you may want to look beyond simply sending cash straight to a charity.
  2. Stock Donations. It’s always encouraging to own a stock that has risen in price. Paying the 20% capital gains tax (and any associated state and local taxes) on your profits is not so great, and can take a considerable bite when it comes time to sell highly appreciated shares. One way to avoid those taxes is by gifting the shares to a charity directly, rather than receiving the cash from selling the shares. The benefit is twofold: You avoid paying capital gains, and you can deduct their full value, up to 30% of your AGI in the current tax year.
  3. Donor-Advised Funds. Donor-advised funds (DAF) are almost like your own personal foundation, combining the ease and simplicity of cash and securities donations with the longevity and flexibility of more complex charitable vehicles. Instead of donating directly to a charity, you use a DAF as a conduit for making donations to charities over time. You contribute cash or highly appreciated stocks to the DAF and receive an immediate tax deduction.Once the DAF is funded, you can direct its funds to charitable organizations right away, or defer making grants for a while, at no cost. In the meantime, you can make your charitable account grow by investing it in any of several investment options that the DAF offers. DAFs are easy to set up and your adviser can help you invest them according to your charitable goals. There are administrative costs associated with DAFs, but those costs are often outweighed by the ease of using a DAF instead of making and tracking multiple individual charitable contributions over the course of the year.
  4. Qualified Charitable Distributions. We’ve touched on Qualified Charitable Distributions (QCDs) before, and they remain a great way to reduce your income tax if you’re currently taking required minimum distributions (RMD) from your IRA. In lieu of taking your RMD from your IRA account, you can direct some or all of that cash to a charity—up to a limit of $100,000 ($100,000 each for those married filing jointly).

In addition to the direct tax savings techniques mentioned above, charitable gifts can also be a valuable estate planning tool for families that anticipate leaving a taxable estate. Charitable trusts have their advantages, but are complicated to establish and come with substantial administrative costs. Consult with your tax, investment and estate planning professionals before taking the leap.

Charitable giving is a worthy pursuit but the tax implications can be tricky, so please contact your portfolio team and tax professional if you have questions about your specific situation. We’re happy to help.

Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

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