Most people think about charitable giving around tax time when they are prompted to compile or revisit the list of various contributions they have made in the past year. But financially savvy individuals know that a year-long charitable giving strategy is the best way to lift up their favorite causes while reaping maximum tax benefits. If you’re looking to move from the former to the latter, you’re in luck! This blog outlines some of the best ways to get started on a year-long plan of supporting your favorite charitable causes.
The main benefits of working with your financial planner on an annual charitable giving plan include the ability to give more strategically to the causes that matter most to you while minimizing the stress of end-of-year giving and maximizing your tax deductions. But depending on your age and financial situation, certain methods of giving may be more beneficial than others. Here are some of the main types to consider:
Appreciated stock donations
When you donate appreciated securities or mutual funds instead of cash, you can avoid the capital gains tax on the appreciated value and receive a charitable deduction for the full market value. However, you will need to have held the appreciated asset for more than a year to receive the maximum tax deduction. Your financial planner can help you do an analysis to look at your potential savings in different scenarios.
Donor-advised fund
Setting up a donor-advised fund allows you to make a charitable contribution, receive an immediate tax deduction, and provide grants to your favorite charities over time. Donor-advised funds are ideal for those who want to plan their giving strategically without the immediate pressure of choosing specific charities. You can also avoid capital gains taxes on long-term appreciated assets if you donate them to a donor-advised fund. These funds are relatively easy to set up but most require a minimum initial donation of $10,000.
Qualified charitable distributions
If you are age 70½ or older, an individual can donate up to $100,000 per year directly from their IRA to a qualifying charity. This is much more tax savvy than making cash contributions, which have already been taxed. This is called a Qualified Charitable Distribution (QCD) and can also satisfy some or all of your required minimum distribution (RMD). It might even help reduce your medicare premiums. Contact us to learn more.
Charitable remainder trust
This type of trust provides you with a vehicle for you or your beneficiaries to receive income for life, after which the remaining assets will go to your chosen charity. A charitable remainder trust can offer significant tax advantages, including a partial tax deduction and potential capital gains tax reduction.
There are a variety of complexities and situations that will impact charitable giving which is why it’s crucial to work with a trusted financial advisor when creating your giving plan.
Whether you’re interested in establishing a donor-advised fund, making qualified charitable distributions, or exploring other giving methods, our team is here to guide you every step of the way. Let’s get started making a difference together!
Paul A. Gydosh, Jr. is founder of Kensington Wealth Partners, Ltd., a premier financial planning organization centrally based in Columbus, Ohio with clients in 26 states and major cities including Chicago, New York, Boston, Washington D.C. and Miami. He is also co-author of “Master Your Financial Success: Retirement and Legacy Secrets from Planning Professionals.” Paul regularly addresses industry, academia and client organizations on topics of current interest. As a leader and mentor in his field, Paul’s commitment to continuous improvement has enabled Kensington to serve the financial needs of some of the most successful individuals, families, and businesses over the last 35 years.
Securities and investment advisory services offered through Osaic Wealth, Inc., member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth, Inc.