Charitable Giving Strategies: What You Need to Know
Donating to your favorite charities can make a meaningful difference to many people. Learn about which tax-smart ways of giving may best suit your situation.
Supporting your favorite charities is a classic win-win situation. Organizations and individuals who need help will benefit from your generosity, while you enjoy the satisfaction of making a positive societal impact.
The concept of charitable giving is straightforward, but the execution often involves complexities regarding tax treatment and other financial considerations. Let’s explore how some common charitable giving strategies work, so you can provide support in a way that makes the most sense for your situation.
1. Direct gifts to public 501(c)(3) charities
We’ll start with non-financial gifts because they’re the easiest. Giving your time and specific talents by volunteering to serve others is thoughtful and practical and has no tax implications. Feel free to roll up your sleeves and help however you can, as often as you’d like. There are so many worthwhile charitable organizations that could use your support as well as your specific knowledge and skills.
For financial gifts, the regulations and tax treatment will depend on whether your gifts are made during your lifetime or upon your death.
During your lifetime:
You can make cash gifts via hard cash, check, wire or credit card. If you itemize deductions, you can generally deduct up to 60% of your adjusted gross income (AGI).1 Donations to a donor-advised fund have different rules (discussed below).
Non-cash gifts include securities, property, vehicles, collectibles or art, and may be a viable strategy if your assets have appreciated in value and you want to avoid capital gains tax. You might need an appraisal to determine the fair market value of your gift. For itemized deductions, you can generally deduct up to 30% of your AGI if you owned the capital gain asset for more than one year.2
For traditional IRAs and Qualified Charitable Distribution (QCD) gifts, if you don’t need the required minimum distribution from your traditional IRA, you can direct part or all of the distribution—up to $100,000 per year—to a qualified charity and remove the amount gifted from your taxable income, even without itemizing deductions. For married couples, each spouse may exclude up to $100,000 of QCDs annually from their gross income, provided they’re both at least age 70½ when the distributions are made, and both have IRAs.3
Upon your death:
If needed, you may receive an unlimited estate tax deduction for charitable financial gifts (e.g., by beneficiary designation from your IRA, qualified retirement plan or life insurance policy). Charitable financial gifts can also be made by a will or living trust, as outlined in the legal documents.
2. Gifts made through a charitable fund or entity
As discussed above, you can typically deduct up to 60% of your AGI for cash distributions and 30% of AGI for appreciated asset gifts, whether the gift was funded during your lifetime or at death.
Regarding donor-advised fund (DAF) accounts, the sponsoring organization has legal control over all donor contributions. However, the donor can stipulate which charities and what amount will be gifted from the DAF. A DAF can be named by beneficiary designation, but may not receive a QCD gift. DAFs are often an easy, low-cost option to arrange direct gifts.
Private foundations are funded with private, family funds. A board of directors or trustees will oversee each private foundation and is responsible for receiving charitable contributions, managing and investing charitable assets, and making grants to other charities. Grants can be made from a private foundation to a DAF. You may generally deduct up to 30% of AGI for cash contributions and 20% of AGI if gifting appreciated assets.4 Charitable gifts made at death receive an unlimited estate tax deduction, if needed.
You may use charitable trusts to support charities and your family. Charitable remainder trusts provide a steady income stream for you or your heirs first, plus they enable you or your estate to claim an estate tax deduction (if needed) for the assets expected to go to charity once the trust is terminated. The “remainder interest” can fund your desired charities when the trust term ends. In addition to direct gifting to qualified charitable organizations, you may include a DAF as beneficiary of a charitable remainder trust. A charitable lead trust generates steady income to your named charities first, and then the “remainder interest” is distributed to your heirs.5
Stay informed
Donating to charitable organizations is an effective way to financially support your community and the causes that matter to you most. While your generosity can make a meaningful difference in society and offer you tax incentives as well, please note that charitable giving rules are subject to change. Refer to IRS Publication 526 for updated information about charitable contributions.6
It's a good idea to work with a tax professional to navigate ever-changing tax laws and how they may apply to you. For more information about charitable giving, please contact your Corient Wealth Advisor.
1 https://www.irs.gov/forms-pubs/about-publication-526
2 https://tax.thomsonreuters.com/blog/charitable-contribution-deductions-what-u-s-accountants-should-know
3 https://www.irs.gov/newsroom/qualified-charitable-distributions-allow-eligible-ira-owners-up-to-100000-in-tax-free-gifts-to-charity
4 https://www.investopedia.com/ask/answers/07/donatestock.asp
5 https://www.investopedia.com/terms/c/charitableleadtrust.asp
6 https://www.irs.gov/pub/irs-pdf/p526.pdf
ABOUT THE AUTHOR
Dana Pingenot
Dana is a Partner, Wealth Advisor in our Dallas office. She focuses on strategic financial planning, family governance, multigenerational estate planning and philanthropic strategies for high net worth families. Her experience in the financial planning profession spans over 35 years.
Dana has appeared multiple times on D Magazine’s list of “The Best Financial Planners in Dallas” and Texas Monthly’s Five Star Wealth Manager list. She received the DFW Financial Planning Association’s Honor’s Award in 2012. She remains actively involved in the community and our profession.
Dana is a CERTIFIED FINANCIAL PLANNER™ professional, a Chartered Life Underwriter and a Chartered Advisor in Philanthropy. She completed her Bachelor of Business Administration in Financial Planning from Baylor University, where she was a charter member of the Financial Management Association, and a music scholarship recipient, playing her trombone.
