Exploring Charitable Giving: Maximizing Impact and Fulfillment

Philanthropy is a powerful force that not only supports communities but also enriches the donor’s life. Embracing the spirit of giving can bring personal satisfaction while offering intriguing financial benefits.  At PFG, we commonly work with clients that have a strong desire to give and we help map out efficient ways of doing so. 

For this week’s post, I wanted to share three strategies we use to maximize both personal impact and potential tax advantages in charitable giving.

Qualified Charitable Distributions (QCDs)

If you're over 70½, directing up to $105,000 tax-free from your IRA to eligible charities is a possibility. This approach offers a straightforward way to fulfill charitable goals without affecting your taxable income.

This is a common strategy we work with for those with RMDS but don’t want/need to take the money.   Rather than paying taxes on the RMD, they annually gift the amount needed to be withdrawn from the IRA acct to a charity/cause of their choosing, tax free.  This option can give flexibility to the client each year on who and how much, giving them the ability to make a larger impact or spread their impact over multiple causes on a one-time or multiple year basis.  This is restrictive to qualified (retirement) accts and only for those over age 70½.

Donate Appreciated Assets

Contributing long-term appreciated assets like stocks, real estate, ETFs or mutual funds can be a smarter approach than cash donations. This method can be more tax-efficient, enabling you to support causes close to your heart with greater financial clout. 

Rather than selling the stock/position to cash (and paying income and/or capital gains tax), and then giving the net amount to a charity or cause, you can gift the stock/position directly without having to sell/pay taxes, thus having a larger tax efficient impact.  This is used in the non-qualified (non-retirement) acct space and has no age restriction.

Donor-Advised Funds (DAFs)

Setting up a Donor-Advised Fund allows you to receive an immediate tax deduction while growing your funds tax-free. This account offers the flexibility to decide later the charities you wish to support, making your philanthropic journey thoughtful and strategic. 

Not as commonly known/used, but we at PFG, often use it for those clients that want to accumulate and give over time/for the future and get a tax deduction along the way with contributions to the account.  Aligning these contributions in years of higher income (bonuses, selling off real estate, etc) can significantly boost your tax benefits AND your impact. No age restrictions.

Support Recognized Charities

Ensure your selected charities are IRS-recognized to qualify for tax deductions. Supporting legitimate causes not only guarantees that your contributions are making a difference but also aligns with tax-efficient strategies.

Document Contributions

Maintain meticulous records of your donations for tax purposes, such as receipts and necessary documents. This practice will safeguard your eligibility for deductions and streamline the tax-filing process.

Understanding and implementing informed charitable giving strategies not only heighten the benefits to the recipients but also enhance your personal and financial rewards. Feel free to reach out for expert guidance on optimizing your charitable activities to make a lasting impact.

If you have any questions on your own charitable giving strategies or would like to talk, reach out…we’re here to help!

 JL