Charitable giving is one of the most common goals for households with wealth, both pre and post-retirement. A thoughtful charitable giving strategy couples charitable giving desires with a plan around giving that takes into account tax efficiencies, the timing of donations, and the impact of these contributions.
To help you plan better in fulfilling your charitable giving desires, we will discuss a few tips to help achieve these goals. Please also note that charitable giving is one of the three components of our integrated approach to wealth management. To learn more, please visit our website.
Here are a few tips that can help make your giving more tax-efficient:
1. Gift appreciated assets versus cash
Many donors are not taking full advantage of the tax deductions that are available when it comes to making donations. When donors decide to give appreciated assets such as stocks directly to a charity rather than cash, they may not need to pay capital gains taxes on the given stock’s appreciation. Directly gifting appreciated assets decreases potential tax liabilities for donors and benefits the charity.
2. Plan your giving over multiple years
In retirement, a large portion of your itemized deductions have lower thresholds causing many retirees to use the standard deduction. When using the standard deduction in retirement, most charitable contributions are not eligible for a tax deduction. By planning gifting over multiple years, retirees can potentially fund multiple years of giving in one tax period via a Donor Advised Fund. This strategy allows retirees to use itemized deductions during that tax period creating a potentially significant tax deduction for that year while allowing these funds to be distributed over a period of time.
3. Qualified Charitable Distribution
A critical aspect of giving in retirement is reducing your overall taxable income. One strategy for individuals who are 70.5 or older is to exercise a Qualified Charitable Distribution (“QCD”). A QCD goes from your retirement account directly to a non-profit. Gifting using a QCD is relatively straightforward. That said, if using a QCD, it is important to work with your CPA to make sure these gifts are recorded appropriately as custodians do not differentiate between normal distributions and charitable ones.
4. Continued diligence on charities
An important aspect of giving is having a complete understanding of your charitable giving desires and how they reflect the impact you are trying to make. It can be beneficial to take a moment to sit down, put pen to paper, and map out what matters most to you. Once you have an organized understanding of your potential impact, it is then easier to find charities or projects within a charity that align with the impact you are trying to create. There is also follow-up work that can be done to see whether the charities you are giving to are effectively using your donations to create a long-term impact that you can be proud of.
5. Getting the next generation involved
Often, families want to ensure that charitable giving continues with future generations. We work with families to maximize family engagement through a charitable giving process that allows multiple generations to understand the process of vetting charities that demonstrate an alignment with their values. Oftentimes, it may be helpful to sit down and have a conversation with your family about how you can have an impact on issues that are close to the heart. Sometimes it’s an opportunity to discover the next generation’s passions around their impacts. After coming to an understanding of what charities are important to the family, you can help promote the importance of giving to your children and/or grandchildren by making gifts in their name. Both Schwab and Fidelity allow you to transfer grant-making abilities from a DAF to other family members. Allow them to become more aware of the process and impact.
Related: The Top 5 Accounts for Retirement