Giving Back: Tax-Savvy Charitable Giving Tips

Summary

Check out these charitable giving tips to make sure you are making the most of the tax benefits associated with your philanthropic efforts.

Are You Making the Most of Your Philanthropic Efforts?

Philanthropy is one of the most direct, effective ways to change the lives of others for the better, and this article is full of charitable giving tips to help you make the most of your generosity in this season of giving. Taking a strategic approach to how and when you give can help you save on taxes while making the greatest impact for your favorite charities, too.

Charitable Giving Tip: Give a Gift That’s Appreciated

In addition to outright cash gifts, remember that you can also choose to donate stocks, bonds, and other appreciated securities. While it’s a bit more work than a check or credit card, these giving vehicles still provide financial support to the recipients and can offer you some valuable tax benefits as well.

When gifting appreciated securities, neither you nor the charitable organization owes capital gains tax on the growth. Not only will your gift help you avoid that tax, but it will also be eligible as a tax deduction equal to the fair market value of the security and up to 30 percent of your AGI.

Charitable Giving Tip: Try an Alternative to an RMD

If you are 72 years or older, you are likely taking out your Required Minimum Distributions (RMDs) each year. Nearly all retirement accounts, with the exception of Roth IRAs, require you to take out RMDs as the government does not allow you to keep your money in a retirement account indefinitely. To meet that RMD, you could consider a qualified charitable distribution, known as a QCD, which is a donation made directly from your IRA. Unlike appreciated security, this giving strategy doesn’t qualify as a charitable donation, but it does decrease your taxable income.

While effective, this strategy is more complex with strict requirements, so we recommend you involve your financial advisor if you are considering a QCD. In addition to decreasing your taxable income, it can also be beneficial for Medicare premiums. You must be at least 70 ½ years old to make a QDC, but it may be wise to wait until you reach 72 when you will be required to take RMDs. The maximum allowable amount per year for a QCD is $100,000, but recent tax changes mean that this maximum could be different if you have made deductible contributions to your IRA.

Laws surrounding taxes always seem to be in flux. That’s why it is essential to work with a professional who can advise you on the best strategy for your unique financial situation and future goals by offering the most up-to-date charitable giving tips.

Charitable Giving Tip: Establish Your Own Donor-Advised Fund

You can create your own charitable entity by establishing a donor-advised fund (DAF), which comes with immediate charitable tax deduction benefits. A DAF is essentially a personal charitable giving fund with great flexibility.

As the donor, you put your money into the fund, and then you recommend when gifts should be made from that fund to your favorite charities. While your money sits in the account, it is invested, and any growth from those investments is tax-free. In addition to cash, you can use appreciated securities (stocks, bonds, etc.) to fund your donor-advised fund and reap even greater tax benefits.

Charitable Giving Tip: Take a Strategic Approach to Itemizing

Many people avoid itemizing because it is too time-consuming. In addition to that, the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, making the benefits of itemizing applicable to fewer Americans. If you are interested in itemizing, add up your home mortgage interest, property, local and state taxes and other allowable deductions, such as student loan interest, healthcare expenses, and more. If that number is more than the standard deduction, itemizing might be the right strategy. For 2022, the standard deduction is $12,950 for individuals and $25,900 for married couples filing jointly. The standard deduction is slightly higher for those 65 years and older.

 

Charitable Giving Tip: Pay It Forward – and Ahead of Schedule

With the recent hikes in the standard deduction threshold, it may be difficult for many people to exceed that figure and derive the tax benefits of itemizing. One strategy to increase your deduction is to make more than one year’s worth of charitable gifts in the same tax year. This is sometimes referred to as “bunching” your charitable gifts, and appreciated securities are often used for this approach.

Closing Thoughts on Charitable Giving Tips

Charitable giving can be an important component of your overall financial strategy. We’ve outlined some charitable giving tips above, but your plan should consider your unique circumstances. A financial adviser can review your portfolio and other relevant factors, including your age and the amount you can give, to help craft your charitable giving strategy.

At Aviance, we aim for a deep understanding of our client’s circumstances to help develop a plan that’s tailored to their specific financial goals. If you’re interested in discussing any of the strategies described above that can transform lives and communities, please reach out to us. We are here to partner with you to make a difference.

Disclosures: Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past investment performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.

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