Smart Strategies for Charitable Giving: How to Improve Your Donation Strategy
Today, we're diving into the world of charitable donations and how you can make the most out of your generosity! We don't donate to charities for financial gains of course, but what if I told you there are ways to change your gifting strategy to potentially pay less in taxes and keep more in your pocket for yourself or give more to your favorite cause! (Unless Uncle Sam is your favorite cause, maybe?)
Intrigued? Let's explore some ideas to level up your gifting game! We’ll focus most on the final one but here are a few
Consider combining all three to strategies to gift like a pro!
Bunching Your Gifts
Ever heard of bunching? No, I'm not talking about grapes; I'm talking about bundling your charitable contributions into specific years to help maximize your tax deductions. Here's how it works: instead of giving a little each year, you concentrate your donations into one year. Why? Because it can help you reach the threshold for itemizing your tax deductions, which means more savings come tax time.
Gifting Appreciated Stock
Now, here's a neat trick we see missed so often! You can gift your stocks from your non-qualified retirement account and not need to pay your capital gains tax!
Let’s see how it works… Say you've got some stocks that have grown in value over time. Instead of cashing them out and facing a hefty capital gains taxes, you can gift them directly to your favorite charity? It's a win-win! You get a tax deduction for the full value of the stock, and the charity gets a nice boost and since they are a non-profit won’t owe taxes when sold! Plus, you skip those pesky capital gains taxes altogether. Talk about a double win!
Donor Advised Fund (DAF)
Ah, now for the star of the show – the Donor Advised Fund (DAF). Think of it as your personal giving account, but with extra perks. Here's the lowdown: You can control a Donor Advised Fund and decide when and where you want to gift money out of the account. It must be to a 501(c) and no you can’t gift it to yourself by claiming you’re non-profit you started this week! It has to be a legit non-profit.
What can I gift into the Donor Advised Fund?
Cash or Investments: With a DAF, you can contribute either cash or investments into the account. So, whether you want to donate your tithe or shares of that hot stock you've been holding, the choice is yours! May want to consider a mix of both based on your situation!
Immediate Tax Deduction: When you transfer assets into your DAF, you get a tax deduction for the full amount.
Tax-Advantaged Growth: Once your cash or assets are in the fund, they can grow tax-free. That means more money to support your favorite causes without Uncle Sam dipping his fingers into the pot.
Control Over Giving: Here's where it gets really cool – you get to call the shots on when and how your assets are distributed to charities. So, if you're feeling extra generous one year, you can make a big splash. And if you want to spread the love over time, that's cool too! Some people set up a percent withdrawal from the account each year to their favorite charities. You’re still in control over the money and what non-profit gets it and when!
Pro-Tip: Have some appreciated stocks hanging out in your qualified account? Consider donating them directly to your DAF. Not only do you get a tax deduction for the full value of the stock, but you also sidestep those capital gains taxes. Plus, you can repurchase the same stock if you want, giving your cost basis a boost. It's like playing the stock market, but with a heart of gold.
So, there you have it – a crash course in smart giving strategies. Whether you're bunching your gifts, gifting appreciated stock, or diving into the world of Donor Advised Funds, there's multiple strategies to help improve your donations. So go ahead, be generous, and watch your impact grow – both for your wallet and the causes you care about. Happy giving!
Disclosures:
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. AI (artificial Intelligence) sourced articles may be prone to error, due to the vast information they assemble from the internet. Always confirm any questions or concerns you may have with an experienced professional. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual
The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Consult an attorney or tax professional regarding your specific situation.