Charitable giving can be an important part of a financial plan, providing an opportunity to support causes that matter to you while potentially creating financial and tax benefits along the way. But giving doesn’t always have to mean writing a check or making a cash donation. Depending on your financial situation and long-term goals, you may have other opportunities to make a meaningful contribution.
Let’s review a few strategies that allow you to utilize your assets for charitable giving, including donor-advised funds, qualified charitable distributions, and gifts of appreciated stock.
Donor-advised funds
A donor-advised fund (DAF) can help you maximize your charitable giving. It’s sponsored by a 501(c)(3) nonprofit organization, which subsequently owns the assets and handles all the administrative tasks and the grant administration process. The sponsor also ultimately has final say in where the money goes, but you can make recommendations.
Here’s how it works: You make an irrevocable contribution to the DAF of either cash or other assets, like appreciated securities, and then you can claim the tax deduction the year you contribute assets to the DAF.
Say, for example, you usually donate $2,500 a month to charity ($30,000 per year). You can donate five years’ worth of your donations to the DAF ($150,000) and get the tax deduction for the year you give to the DAF. The DAF could then disburse $2,500 a month to charity, just as you have previously done. This can be especially beneficial to those taxpayers who typically claim the standard deduction instead of itemizing, as it allows you to “feel” the impact of your giving on your tax return.
Note: While you get a tax deduction at the time of the original donation to the DAF, you cannot deduct the amount again when the money is distributed from the DAF to the qualified charity.
Qualified charitable distributions
An often-overlooked source of funds to contribute to charity is your IRA. A qualified charitable distribution is a distribution of up to $100,000 (indexed annually for inflation) from your IRA after you reach age 70½ that can be sent directly to a charity of your choice. This avoids the distribution being considered taxable income to you. Additionally, if you are subject to RMDs from that IRA, you can offset any RMDs for that year. And if you’re not yet required to take RMDs, QCDs can help reduce the IRA’s balance before RMDs begin.
This essentially functions as an above-the-line deduction and a dollar-for-dollar reduction in income that supports your favorite qualifying charitable causes.
Note: Make a QCD before any other withdrawals from your retirement accounts. The IRS treats the first money withdrawn from traditional IRAs as the RMD, so a QCD taken after you’ve already satisfied the RMD won’t offset any of that taxable income.
Gifts of Appreciated Stock
Another tool to use is a donation of appreciated publicly traded stock or other marketable securities instead of cash to your favorite charities. With this approach, a trifecta of tax benefits can be realized: You can get a deduction for the fair market value of the stock at the date of the gift; the donor avoids paying capital gains on the stock; and the charity doesn’t pay taxes on the gift.
Keep in mind that the deduction for stock gifts is limited to no more than 30% of your adjusted gross income. If you were to make a cash donation, you could deduct up to 60% of your adjusted gross income.
Note: Check with the charities you want to support to see if they accept gifts of stock.
Get the support you need to put your giving plan in place
As you plan to make your gifts to charity, consider these options that offer additional benefits. Your financial advisor can help you review each strategy and decide what might be the best fit for your situation.
If you aren’t currently working with an advisor, connect with us to find the support and insights you’re looking for.
Jamie Carroll is a non-registered associate of Cetera Wealth Services LLC, Member FINRA/SIPC. Any information provided by this individual is provided entirely on behalf of CWM, LLC and is in no way related to Cetera Wealth Services LLC or its registered representatives.
Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.
9197800.1-1126-C
