How to Maximize Charitable Giving
Charitable giving is top of mind for many people this time of year. During the Thanksgiving and Christmas seasons, you will probably receive lots of emails, texts, mail requests, or social media ads from various organizations requesting charitable gifts. I am sure you have already seen quite a few.
The holidays are a great time to not only buy presents for your family and friends but also to give to organizations that you care about, support, and do good work. Charitable giving, however, is one of the few times when cash is not king. While writing a check or sending cash to an organization might be the easiest option, there may be better options to use for charitable giving.
If you are charitably inclined and want to make an impact by supporting organizations you care about, here are three ways to be financially savvy in your giving.
1) Give appreciated assets.
Did you know that you can give things other than cash to a charity? Most people aren’t aware of this as a means of charitable giving. Appreciated assets can be things like:
- Stocks or bonds
- Mutual funds
- Real estate
- A business
Any or all of those can be given to a charity. When you give appreciated assets, you get a tax deduction for the total value amount of that gift. For example, let’s say you own some stock valued at $1000. You bought the stock for $500, which has appreciated by $500, so now you have $1000.
By giving that stock as a charitable gift rather than selling it and writing a check or using cash on hand, you avoid the capital gains tax on the appreciated $500 and potentially get the tax deduction.
2) Use a required minimum distribution.
This strategy applies to those who are over 70 ½ years old. It is only available to do from an IRA. 401k’s are not eligible for this type of charitable giving. This allows you to send your gift directly to the charity, church, or other organization you care about.
This way of giving counts for your minimum distribution, but you don’t have to pay any ordinary income taxes on it. Typically a charitable contribution is a deduction that only reduces the percentage of your total tax bill. Using this option means you don’t have to pay any taxes on it at all.
It’s a more effective way to give directly to a charity, especially if you’re already using your minimum distribution and are charitably inclined. Even though the required minimum distribution age is 72, you can begin giving directly from your IRA at age 70 ½. There is a limit of $100,000 annually for this type of charitable giving.
Generally, you will work with your financial institution to set that up. They will send the check to the organization on your behalf.
3) “Bunch” your charitable giving
This is similar to the first option, but you will “bunch” it into a larger gift. The standard deduction for charitable giving is higher now, around $20,000 to $25,000 for married filing jointly. Because the deduction is so high, if you want to give $1,000 a year to an organization, you won’t get any tax benefit for it unless you can cross the threshold of the standard deduction amount.
If you want to give an organization $1,000 a year, consider “bunching” your gift. Give $30,000 or $40,000 from your stocks, mutual funds, or any after-tax account in one year. Essentially, you are taking what you would have given, and rather than spreading it out over time and possibly missing the tax deduction, you give it all at once and get the deduction that year.
If you don’t want to give the entire amount to the charity directly, you can set up a donor-advised fund. Also known as a DAF, this is a fund that you give money into and get the tax deduction that year. You control the money and when it’s given out. You can choose to disburse the charitable gift over three, five, ten, or more years.
It’s the season of giving.
Helping others brings joy to the giver and the receiver. Still, it pays to be smart about how you give. If you are a Disney cast member, another option is to take advantage of Disney’s matching gift program. The company matches your charitable gift dollar for dollar up to $25,000. It’s a great benefit to help you and the organizations you care about. If you give $10,000, Disney matches it, meaning the charity or organization receives $20,000.
All of the options discussed are great ways to help others while also using good financial strategies for yourself. It’s best to discuss your options with your financial planner. I’m happy to speak with you if you don’t have one.
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