Smart Charitable Giving Strategies - Adviser Investments

Smart Charitable Giving Strategies

April 30, 2021

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

This week we’ll suggest four smart (and strategic) ways to give charitably.

1. Direct cash donation. It isn’t the most tax-efficient giving strategy but it is the simplest. Giving cash is often the easiest way to make a charitable contribution, both for you and the charitable organization you’re supporting. 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 rewarding (literally) to watch the stocks you own rise in price. Paying the capital gains tax (20% now, possibly heading to 43% or so for the highest earners if the Biden administration’s plans prevail)—not so great. And that’s before we talk about state and local taxes. One way to avoid those taxes is by gifting appreciated stock to a charity directly, rather than pledging the cash from the proceeds. The benefit is twofold: You avoid paying capital gains, and you can deduct the full value of the shares from your taxable income, up to 30% of your AGI in the current tax year.

3. Donor-advised funds (DAFs). This option is almost like having 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 giving directly to a charity, you contribute cash or highly appreciated stocks to the DAF and receive an immediate tax deduction. Once the DAF is funded, you can direct those funds to charitable organizations immediately or defer making specific grants for a while. In the meantime, the funds can be invested in any of several investment options offered by the DAF and grow tax-free.

DAFs are simple to set up and we can help you fund them according to your charitable goals. There are administrative costs, but they tend to be low and are often superseded by the ease and convenience of using a DAF instead of managing individual charitable contributions over the course of the year.

4. Qualified charitable distributions (QCDs). In lieu of taking required minimum distributions (RMDs) from your IRA account, QCDs allow you to trim your tax bill by directing some or all of that cash to a charity—reducing your AGI up to $100,000 ($200,000 if married filing jointly) per year.

In addition to the tax-saving techniques above, charitable giving is a valuable tool for estate planning. Charitable trusts, in particular, are handy for families that anticipate leaving a taxable estate. But they’re complicated and come with substantial administrative costs—so check with your tax, investment and estate planning professionals before taking the leap.

Contact your wealth management team and tax professional if you have questions about charitable giving and your specific situation. We’re happy to help. After all, we are The Planner You Can Talk To.


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