Strategic Philanthropy: Maximize Your Charitable GivingDec 05, 2023 11:29AM ● By Jennifer Osgood
Charitable giving is an important part of life for many people, and in a community such as Greenville, full of so many worthy and important causes to support, there’s plenty of opportunity for charitable giving. Intentional and responsible philanthropy is a way to promote values, leave a lasting legacy for future generations, and provide deeper meaning and purpose to your financial wealth. Charitable giving can also be a valuable part of an overall financial plan.
When it comes to strategic philanthropy, there is no one right way to proceed. However, a few common giving strategies include donations through assets, donor-advised funds, and qualified charitable distributions. As long as you have a clear vision and a trusted adviser, you can create a strategy to accomplish your philanthropic goals and leave an impact on the community.
Donations Through Assets: One easy way to make donations is through assets. You can donate almost any personal property if it is in good enough condition under IRS tax rules. Two general restrictions apply to tax deductions: cash gifts are allowed up to 60 percent of the donor’s adjusted gross income (AGI), and long-term appreciated asset donations are permitted up to 30 percent of AGI. The term “long-term appreciated assets” covers all exchange-traded stocks, bonds, and mutual funds. Donating these assets can be a practical and tax-efficient way to support a charity. When donating securities, it is important to ensure that the asset donated is a long-term capital gain holding, meaning it has been owned for at least one year. Donating these assets provides a tax deduction at fair market value and will not trigger a capital gain. On the other hand, short-term capital gain positions have their deduction limited to cost basis and not current market value.
Donor-Advised Funds: Another effective way to give is through Donor-Advised Funds (DAF), which are a charitable investment account that is itself a public 501(c)(3) charity. DAFs allow donors to make a contribution and take the corresponding tax deduction in the current year, but the funds within the DAF can be given to charities over a longer span of time, at the donor’s discretion. Since the DAF is a public charity, the donor can sell assets inside the account with no tax consequence. Another advantage of using a DAF is that it utilizes a technique called “bunching,” which is when the donor makes multiple years’ worth of charitable gifts into the DAF to take a deduction in the current year. Then, the donor can spread out grants to end charities over time. In the following years, the taxpayer takes a standard deduction before bunching to itemize again in a future year.
Qualified Charitable Distributions: If you are at least 70½ years old and have an IRA, a Qualified Charitable Distribution (QCD) is something to consider. The IRS allows individuals who are 70½ years old years or older to donate up to $100,000 directly to public charities without treating the distribution as taxable income, even before the Required Minimum Distribution (RMD) age of 73. If you are over 73, a QCD can satisfy your RMD. Because the tax-free QCD is never reported as a deduction, it is not counted against the charitable limits and does not require itemization. It’s important to note that these distributions must be directed to end charities and cannot be made to a donor-advised fund or private foundation. Using these types of nontaxable donations does include stipulations and certain restrictions that need to be analyzed by a professional.
Strategic philanthropy allows individuals to make a powerful and lasting difference. However, there is no one-size-fits-all strategy for charitable giving, and it can become complex quickly. Optimizing your charitable giving efforts starts with defining your philanthropic mission, conducting thorough research, and consulting with advisers and experts familiar with your portfolio.
Jennifer Osgood is the president of Wagner Wealth Management, which has offices in Greenville, Anderson, and Oconee counties. Call 864-236-4706 or visit www.wagnerwealthmanagement.com to learn more about the firm.