By Matt D’Amico
Charitable donations help a lot of people in need. For that reason alone, giving makes donors feel good, as they should. However, there’s another benefit for the person making the gift: tax deductions.
There are several methods for maximizing charitable giving strategies that have potential to result in at least a modest windfall while deepening your legacy. Discover some of the ways you might be able to arrange charitable donations to reduce your overall tax exposure.
Why and How Charitable Giving Is Tax-Advantaged
U.S. donors give hundreds of billions of dollars to charity every year. For communities in need, these donations are lifelines to a better future. Charitable gifts go directly to qualified institutions that need them, easing federal and state budgets.
That’s a big reason why charitable donations are highly tax-advantaged. When given to approved charities, typically 501(c)(3) organizations, donors can make itemized deductions on their taxes.
If the contribution is made in straight cash, the donor is permitted to deduct up to 60% of their adjusted gross income (AGI). If the contribution comes in the form of stocks, property, or other non-cash assets, donors can avoid capital gains taxes and still realize deductions according to the donation’s fair market value.
It’s important that you document all donations when maximizing charitable giving strategies. Charities may provide receipts or letters of acknowledgment to help you back up your donation claims.
Maximizing Charitable Giving Strategies With Donor-Advised Funds
Donor-advised funds (DAFs) are brokerage accounts designed for charitable giving. Donors can place cash and non-cash donations into DAFs and get instant tax deductions on them while spreading out contributions over a given time.
Assets in a DAF grow tax-free. This arrangement allows for contributions to grow in the future. When you donate appreciated assets to it, you’ll steer clear of capital gains taxes for added benefits.
Maximizing Charitable Giving Strategies: Other Methods
Donors have quite a few ways to make charitable donations that can significantly lower their tax bills.
Bunching Donations
One way many donors are maximizing charitable giving strategies is by bunching multiple years of gifts into one tax year. The donation goes straight to a DAF. Once this happens, you can write off the entire contribution by itemizing and deducting the tax. You don’t have to worry about annual tax thresholds.
In future years when your donations are lower, you can take the standard deduction from your tax bill. Those who bunch donations see increased tax benefits from giving while respecting regulations on itemized deductions.
Qualified Charitable Distributions
With qualified charitable distributions (QCDs), retired donors are allowed to deduct required minimum distributions (RMDs) from their retirement accounts, lowering their AGIs. Donors who are 70½ years or older can fund charities straight from their RMDs and exclude the gifts from their taxable income.
The charity in question must be pre-approved by the IRS for this benefit to kick in. The maximum donation is $100,000 per year.
Charitable Trusts
Donors have two trust options that can help with maximizing charitable giving strategies. The first involves donating assets to a Charitable Remainder Trust and drawing some income from it for a set period. The remaining value then goes to a charity. You’ll get a partial tax deduction instantly according to the projected future value of the gift.
The second option is a Charitable Lead Trust (CLT), which works in reverse. Trust income goes straight to a charity over a determined timeline, and the remainder goes to you or your beneficiaries. CLTs can significantly reduce estate and gift taxes.
Maximizing Charitable Gift Strategies: Everyone Wins
By making tax-advantaged charitable donations, donors can save a substantial amount on taxes while doing something beneficial for the world. That’s a win for everyone involved.
Networth Advisors LLC helps donors maximize charitable gift strategies—and we can help you too. To schedule a meeting, call (724) 746-3585, contact us online, or email schedule@networthadvisorsllc.com.
About Matt
Matt D’Amico is a registered Investment Adviser Representative and financial advisor at Networth Advisors, LLC, a financial planning and wealth management firm in Canonsburg, PA. The firm is dedicated to helping clients enjoy a successful retirement, specializing in income planning and legacy preservation for pre-retirees and retirees. Matt excels at simplifying complex retirement concerns to help clients make smart financial decisions.
Matt discovered his passion for finance in college, inspired by a trusted mentor, and earned a degree in finance and business management from Saint Vincent College. Before joining Networth Advisors, he gained valuable experience at New York Life and MassMutual, where he obtained his Life, Accident & Health Insurance Licenses.
Outside of work, Matt is a sports junkie and music enthusiast. He enjoys spending time with friends, embarking on adventures with his wife, Kayla, and their mini labradoodle, Nellie. He is also the co-author of Networth for Retirement: Mapping Out Your Journey. To learn more about Matt, connect with him on LinkedIn.
