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Many clients are aware that there are tax benefits when it comes to charitable donations. Namely, the IRS grants deductions for charitable giving.
“In most cases, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60 percent) of the taxpayer’s adjusted gross income (AGI). Qualified contributions are not subject to this limitation,” according to the IRS. “Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income. A corporation may deduct qualified contributions of up to 25 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year.”
However, as is the case with almost everything related to taxes, there are complexities and hidden benefits clients don’t know how to deal with or access. That’s why advisors can bring considerable value to the table and boost client retention by having tax experts on staff.
After all, everyone likes tax breaks and everyone likes doing right by others, which charitable contributions allot for. With that in mind, here are some charitable giving basics advisors can leverage to help clients.
Know the Landscape
The first point should be easy for advisors. Know exactly how to convey charitable donations to clients because there instances in which a donation isn’t really a donation and others in which the clients may get better (or worse) tax treatment than anticipated.
“Charitable contributions are donations made to qualified tax-exempt organizations, such as charities and non-profit entities,” according to Nationwide. “These contributions can take the form of cash, assets, or property and can offer significant financial advantages for your clients. Philanthropy allows individuals to make a positive impact on causes they care about and contribute to the betterment of society as a whole. This can bring a sense of fulfillment and purpose, which can have a positive impact on their overall well-being.”
Next up is knowing the avenues through which charitable giving can be leveraged for maximum tax benefit. Those options include appreciated securities and donor-advised funds (DAFs). Selling appreciated securities is simply selling an asset, say a stock or bond, that’s increased in value and by donating the proceeds to charity, the client’s capital gains exposure can be significantly reduced or eliminated.
As for DAFs, “these accounts will be maintained and operated by a 501 (c)(3) organization, and the account is funded by individual donors. This philanthropic vehicle allows your clients to make a charitable contribution, receive an immediate tax benefit, and recommend grants from the fund over time,” adds Nationwide.
Make It Part of the Plan
As noted above, many clients are already enthusiastic about donating to causes they support or those that align with their personal values. In many cases, the tax breaks are just icing on the cake, but for wealthier clients, the tax benefits are necessities.
In either case, but particularly with high net worth clients, it can pay to make charitable giving part of a comprehensive, longer-ranging financial plan.
“Incorporating charitable giving into your clients’ financial plan is not just about the potential tax benefits. It’s about giving them the power to achieve their financial goals while making a positive impact on the world,” concludes Nationwide. “By guiding your clients in making strategic charitable contributions, you can help them balance their personal financial ambitions with their desire to contribute to a greater cause—a win-win situation that makes both financial and moral sense.”