Why This Matters:
– Sonja Breeding
The Giving Advantage: How Generosity Can Also Be a Smart Financial Move
If charitable giving is on your to-do list as year-end approaches, there are several ways you can maximize your impact while doing your own finances some good.
By Lawrence Sprung
f the upcoming Thanksgiving holiday and Giving Tuesday have you thinking more about giving generously, you’re not alone. Charitable giving typically ramps up in the holiday season as the end of the year approaches. When done right, giving can benefit both you and the causes you care about.
Turn RMDs into tax-free giving A qualified charitable distribution (QCD) allows you to donate up to $111,000 a year directly from your IRA to a qualified charitable organization. That limit is $222,000 for a married couple when both spouses qualify and have eligible IRAs.
The donation counts toward your required minimum distribution (RMD), lowering your income (and lowering your tax obligation) while also allowing you to support a charity of your choice.
Qualified charitable organizations are typically 501(c)(3) organizations. Individuals can make QCDs to charities where they serve on the board, provided the organization and donation meet IRS eligibility requirements. QCDs can be an impactful way to extend generosity to a worthy cause, but also to potentially lower your tax bill.
If you’re looking for a way to give to other causes you care about, while also decreasing your taxable income, ask your financial adviser if a QCD might be a good option for you.
Donor-advised funds: Give now, decide later
A donor-advised fund (DAF) establishes an irrevocable giving account to a 501(c)(3). The account allows you to consolidate several years of donations into one tax year to maximize deductions. You then recommend grants over time.
A DAF can be ideal for high-income years or in preparation of retirement years since this route can grant you flexibility, control and lasting impact.
A DAF allows you to take on an advisory role to suggest where the funds should go, but the giving account falls under the legal ownership of the sponsoring organization. A sponsoring organization can be a foundation, or the charitable arm of a financial institution, or even a specific charitable organization.
It’s up to the sponsoring organization to handle the bookkeeping and to distribute the funds, keeping your recommendations in mind.
If you want to maximize your charitable donations and create a lasting impact, a DAF might be a good option to explore. But if you want full control over where your donations go, or if you want to give to a cause that’s not a 501(c)(3), other giving options might be more appropriate for you. It’s definitely worth a discussion with your financial adviser.
Donate appreciated assets, not just cash
One method for giving more while paying less to Uncle Sam is to donate appreciated assets. Gifting stocks, ETFs, or mutual funds that have grown in value can help you avoid capital gains taxes while also potentially claiming a tax deduction for the full market value.
Instead of cashing in appreciated assets and then turning around and donating that money to a charity, directly donating the appreciated assets can result in a bigger donation overall. You get to avoid capital gains taxes, and the charity benefits from the full donation.
Not every charitable organization will have the capability to accept appreciated assets, though even the smallest charities can typically partner with a third-party processing agent to accept the donation. If that’s not an option, consider a DAF, which can typically accept appreciated assets before distributing funds to charities.
Make giving a family value
Giving can feel quite personal, but bringing your kids and grandkids into the philanthropy conversation can foster a family culture of giving that can endure for generations. By making charitable giving a family decision, the next generation learns about the power of stewardship.
Take a cue from the Rockefeller family. For nearly a century, they have met twice a year, not only to discuss family news, but to discuss shared values. Charitable giving by the family has the buy-in of the entire family, and legacy and impact are at the forefront of philanthropic conversations. A shared purpose can be powerful, especially when it endures through the generations.
Set time aside for an annual “family meeting” to discuss the causes everyone can get behind. This demonstration of solidarity and philanthropy sets the stage for kids and grandkids to eventually regard giving as a joyful act instead of something that’s someone else’s responsibility.
If you’re at a loss as to how to facilitate a family meeting, your financial adviser likely has tips and resources they can offer you.
Define your ‘why’ before you write the check
The most meaningful giving starts with clarity about the causes that align with your values. It’s important to be intentional about your giving and to support charities that do the work that is meaningful to you.
Potentially lowering your tax obligation is only one of the many benefits that come with being generous to charitable causes. Research suggests that being charitable can benefit your mental well-being and provide a deeper sense of purpose.
Beyond those benefits, of course, are the benefits derived from your donation by the charitable organization and the surrounding community as a whole.
Whether it’s education, health or community, focus your donations on causes that align with your values. Get your family involved so you create a lasting legacy of joyful giving.
