November 11, 2024
Allworth advisor Laurie Ingwersen, CFP®, CRPC®, CDFA®, CBC®, CEPA®, shares strategies to maximize the impact of charitable donations while gaining potential tax benefits.
For many of us, giving back is more than a financial decision—it’s personal. Maybe you’re passionate about a specific cause, or you want to leave a legacy that reflects your values. What many people don’t realize, though, is that there are ways to structure charitable giving to maximize both your impact and your tax benefits. Let’s take a look at a few strategies that might be helpful as you think about making a difference while also being tax-smart.
One of the most popular tools for giving is a donor-advised fund (DAF). Think of it as your personal charitable account. Here’s how it works: you make a donation to your DAF, receive an immediate tax deduction, and then have the flexibility to distribute those funds to various charities over time.
This is especially helpful in high-income years. For example, if you’ve had a large income year—maybe you sold an investment or received a bonus—you can contribute to a DAF and offset that income with the charitable deduction. And since you don’t have to decide on specific charities right away, it gives you time to think about how and where you want to make an impact.
If you’re over 70½, qualified charitable distributions (QCDs) from your IRA can be a powerful way to give back. This strategy allows you to donate up to $100,000 per year directly from your IRA to a charity, tax-free. Better yet, if you’re required to take minimum distributions (RMDs), this counts toward your RMD without adding to your taxable income.
QCDs are ideal if you don’t need your RMDs for living expenses but want to support causes close to your heart. By lowering your taxable income, QCDs can also help keep you in a lower tax bracket and reduce potential taxes on Social Security benefits.
If you’ve held stocks or other assets that have increased in value, consider donating them directly to charity. By doing so, you avoid paying capital gains tax on the appreciated value, and you can claim a charitable deduction for the fair market value of the stock.
Let’s say you bought a stock years ago that’s appreciated significantly. Instead of selling it (which would trigger capital gains tax), donating it directly to a charity maximizes your contribution and the tax benefits. Many charities are set up to accept appreciated stock donations, making it a simple and effective way to increase your impact.
If you’re looking to provide for family while also giving to charity, a charitable remainder trust (CRT) could be an option. Here’s how it works: you transfer assets into a trust, which then pays income to you or your beneficiaries for a set time or for life. After that period, the remainder of the trust assets goes to your chosen charity.
A CRT can help reduce estate taxes, provide income for loved ones, and offer an immediate charitable deduction based on the expected remainder that will eventually go to charity. It’s a strategic way to support your family and the causes that matter most to you.
If your goal is to create a legacy that lasts beyond your lifetime, establishing an endowment can be a wonderful choice. Endowments are invested funds where only a portion of the earnings are used each year, allowing the fund to continue supporting the charity indefinitely. Many institutions offer naming opportunities, so your contribution can have a visible, lasting impact.
Creating an endowment is a meaningful way to ensure that the causes you care about receive ongoing support, even after you’re gone. It’s a powerful way to leave a legacy and make a sustained difference.
Ultimately, the right giving strategy depends on your goals, financial situation, and the causes you’re passionate about. Integrating charitable giving into your financial plan can help you make a bigger impact and maximize tax benefits. And if you’re looking for guidance on which approach might be best for you, I’m here to help. Let’s work together to create a giving plan that aligns with your values and supports the causes you care about most.
My father was a financial advisor who introduced me to the impact proactive planning can have on people’s lives at a very early age. At the same time, I also watched my mother struggle to make the right, forward-focused decisions after divorce—which ultimately led her to a life of financial insecurity. Forever moved by the sacrifices she made for us, I want to honor her by helping others avoid some of the mistakes she made. Now as a passionate financial professional myself, I strive to help others make sound financial decisions that expertly balance their priorities today and their future needs.
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