Strategic Charitable Giving Opportunities

We are often asked if there are strategic ways to be philanthropic. The simple answer is yes. There are numerous ways you can make an impact through charitable giving (both in time, money, investments, supplies, etc.) while realizing some of the tax benefits that go along with it. Below we share several considerations for charitable endeavors and the tax benefits you may receive by giving.

Donate & Itemize: If you are interested in getting a tax benefit from your charitable giving, your itemized deductions must exceed the standard deduction ($6,500 for an individual and $13,000 for a married couple). Your cash and non-cash charitable contributions are itemized deductions and can be used to reduce your taxes in this case. It is also important to be aware of limits the IRS sets on your charitable tax deductions. You can deduct appreciated assets up to 20% of your Adjusted Gross Income (AGI), non-cash assets up to 30% of your AGI and cash up to 50% of your AGI. If you donate more than these limits, the charitable contribution deduction can be carried forward for five years.

Choose You Charities Wisely: Make sure the organization is labeled as a qualified charitable organization by the IRS. Websites like Charity Navigator help you choose amongst thousands of verified charities to find the organization that is right for you.

Donate Appreciated Assets: Taxable accounts that hold appreciated stocks can be a smart way to donate. For example, if you originally bought a stock for $100 that appreciated to $5000, instead of selling and realizing that gain and paying taxes, you can donate the $5,000 of stock to charity. That allows you to receive the entire amount as a tax deduction and the charity pays no taxes on the receipt of your stock.

Donor Advised Funds (DAF): A donor-advised fund, or DAF, is a charitable giving vehicle sponsored by a public charity that allows you to make a contribution to that charity and be eligible for an immediate tax deduction, and then recommend grants over time to any IRS-qualified public charity. Donor-advised funds are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantageous ways to give to charity.

When you donate to your donor-advised fund, you’re making a tax-deductible donation to the organization sponsoring the fund. But because your account is a donor-advised fund, you advise the organization on how to grant the money out to your favorite charities. Your donation is also invested based on your preferences, so it has the potential to grow, tax-free, while you’re deciding which charities to support.

Donate Your Required Minimum Distribution (RMD): You must be at least 70 ½ to make this type of donation directly from your Traditional IRA. Many people in higher tax brackets take advantage of this strategy because these donations can count as your required minimum distribution but not towards your income. Reducing your income on your tax return may limit the impact of exemption and itemized deduction phase outs. There is a $100,000 per individual or $200,000 per married couple limit per year for required minimum distributions to charity.

Volunteering Tax Deductions: Your time is not tax deductible to the IRS but some indirect costs of volunteering are. For example, you can deduct mileage and travel expenses related to your volunteering. If you travel to Guatemala to volunteer and then rent a car, these expenses are tax deductible. Furthermore, supplies you purchased for the charity that were used during your time volunteering can also be deducted.

Charitable Gift Annuities: Charitable gift annuities are attractive options for those looking for some type of income stream. The donor makes a one-time tax-deductible donation and receives income from the charity for life. The way these funds work is like a regular annuity. The charity uses a certain amount when the gift is given and sets aside the remaining amount to invest and help pay the income payments to the donor.

Be Prepared: Document all gifts to charities with receipts for cash and non-cash donations. If it is possible to write a check or donate online, these are preferable ways to give because it leaves a verifiable trail and donor receipts. For non-monetary gifts, get appraisals and have those documents stored for safe keeping. If for any reason you get audited, you need to be prepared to provide evidence for their tax deductions.

And finally, decide when you will donate. We would never advocate donating for tax reasons alone. You should do so based on your own personal values and objectives. You can be strategic about when you donate because the year you contribute is the year you get the tax deduction. If you are expecting higher income the following year, then it might be a good decision to wait until that calendar year to make your donation. In conclusion, it is great that you are considering making an impact in the world and it feels even better when you do it in a strategic way.