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Charitable Giving

7 ways to make the most of your charitable giving

By Kelly Pedersen, CFP®

It’s that time of year when many of us are feeling charitable and thinking about giving back. There is no shortage of worthy causes that could use our support these days.

As a whole, we Americans are a giving bunch. According to Giving USA, individuals, bequests, foundations and corporations gave an estimated $471.44 billion to U.S. charities in 2020.

However, as well-meaning as many people are, too often they miss opportunities that could benefit the causes they care about … as well as their own finances.

The reality is some of the philanthropic strategies that worked in the past are no longer applicable. Plus, there are new tactics that can maximize one’s giving that many people are simply unaware of.

Below are seven strategies to make the most of your charitable giving:

  1. Make the most of qualified charitable distributions (QCDs). For those who are at least 70.5 years old and have required minimum distributions from IRAs, qualified charitable distributions can be a great way to support your favorite charities while lowering your tax bill. Instead of receiving the required distributions yourself, send them to a qualified charity. By doing so, you not only support that charity, but those distributions will be excluded from your taxable income. However, be sure to tell your accountant or else your donations could still inadvertently be included as income on your tax return. Also, most custodians do not track QCDs either.
  2. Don’t wait. It’s important to note that if the charity you select doesn’t receive your qualified charitable contributions by year end, those contributions won’t count toward the current year’s tax filing. So make your contributions as soon as possible.
  3. Be aware of restrictions on QCDs. There is a common misconception that you can select a donor-advised fund to receive QCDs from an IRA. Donor-advised funds cannot receive QCDs. Rather, those distributions must go directly to the charity intended to receive them. The best way to do this is to write a check from your IRA to the charity of your choice.
  4. Sorry, no kids or political groups. Regardless of where your passions lie, you cannot make charitable gifts to your children or other relatives, nor can you donate to political organizations, and receive a tax deduction for those gifts.
  5. Itemize your tax return if you can. The only way to deduct your charitable contributions is to itemize your tax return. To do that, you must have at least $25,100 in deductions (for joint tax returns). If you don’t have that much in deductions, or choose to file a return using the standard exclusion, you cannot deduct charitable contributions on your tax return. If that is the case, your other option (assuming you meet the age requirements) is to make QCDs from an IRA.
  6. Think beyond cash. When supporting a favorite charity or cause, it can be a knee-jerk reaction to simply want to give cash. That is noble, but a potentially even more valuable gift can be appreciated stock. When you make a gift of stock, you not only avoid paying the capital gains tax on that asset, but you also get to fully utilize the value of that security as a deduction on your tax return. Plus, the value of that stock could continue to increase meaningfully for the charity as well.
  7. Consider a donor-advised fund. Many families who want to formalize their charitable giving gravitate first toward creating a family foundation. However, setting up a foundation can be a complicated and expensive process because of the administrative fees involved. Family foundations are typically recommended for families with at least $2 million in assets to donate. A better option can be a donor-advised fund, which is relatively simple to set up with very modest fees. At CAISSA, we’ve helped many families create donor-advised funds quickly and efficiently.

 

Finally, please know that the desire to give back with your hard-earned assets is not mutually exclusive from benefiting personally from such gifting. In other words, it’s OK to receive a tax deduction, for example, for donating to the causes you care about. It’s truly a win-win situation for everyone involved.

To discuss how you can maximize your charitable giving, please contact CAISSA Founder Kelly Pedersen.