Charitably Inclined?
Ways to Make Giving a Part of Your Financial Plan
Charitable giving comes in many forms, and is a question I often receive from clients throughout the year. There are different ways to approach the discussion, and the option chosen depends on the “why” – is it for tax benefits, to help a particular organization, or to create a legacy for future generations? All of these impact your financial plan in various ways, and below is a list of the most common methods utilized to answer these questions.
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- Whether via check or online donation, this is the simplest form of giving to a charitable organization.
- Allows individuals to deduct the full value of their cash donation on their taxes, up to 60% of their adjusted gross income (AGI).
- Donation of Goods and Property
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- This allows donors to gift physical items, such as clothing, furniture, vehicles, and real estate, directly to charitable organizations. Goodwill, Habitat for Humanity, and the Salvation Army are examples of typical recipients.
- This can be slightly more complicated for tax reporting purposes, as these types of donations are deductible at their fair market value on the date of donation and may require an appraisal for higher-valued items. More information on reporting requirements can be accessed through the IRS website.
- Donation of Appreciated Investments
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- This involves donating appreciated stocks, bonds, or mutual funds held for over one year to a qualified charitable organization.
- Can typically be transferred directly to the charity and allows for a tax deduction of up to 30% of your AGI.
- Also mitigates capital gains tax.
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- Investment accounts that have become increasingly popular for their flexibility. Allows donors to contribute assets and then grant them to different charities over time.
- Allows for an immediate tax deduction, and follows the guidelines based on whether it is a cash donation or appreciated assets.
- Qualified Charitable Distributions (QCD)
- Charitable Remainder Trusts (CRT)
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- An irrevocable trust established to receive donated assets that will distribute income to the donor or beneficiary for a set period, with the remainder going to charity.
- Allows individuals to take charitable deductions based on the present value of the remainder that goes to charity, while also providing income.
- Also mitigates capital gains tax.
- Charitable Lead Trusts (CLT)
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- An irrevocable trust established by a donor to give assets to a charity for a set period, with remaining assets passed along to the donor’s beneficiaries (such as children or other heirs).
- Offers a charitable tax deduction based on the present value of the income being sent to charity, but also provides gift and estate tax benefits.
Charitable giving offers substantial flexibility to decrease your tax burden while helping those in need. With so many options available, I encourage taxpayers to speak with their financial and tax planning professionals. They’ll help you determine how charitable giving fits into your big picture. And if you haven’t already connected with our team, book a call to learn more about our process and expert partners to build your plan.
Best,
April Rohl
Financial Coach
