Charitable giving is a tradition for many of us, but did you know that tradition is as old as time? In fact, the name for doing good – philanthropy – derives from the ancient Greek term for the love of humanity. Like everything, things have evolved considerably since the term was coined. Today’s giving strategies not only provide tax benefits, but also something else that may be important to givers like you: choice.
Timelessly Simple
Writing a check. This is one of the easiest ways to gift, especially for those who give sporadically to a limited number of charities. Of course, you can also donate gently used items and clothing.
Donating appreciated securities. Doing so means you’ll receive an immediate tax deduction and can help you avoid paying capital gains tax on the appreciated portion of their value. Gifts also have the potential to reduce future estate taxes.
Donor-advised funds (DAFs). Think of this as a charitable checking account. DAFs combine the ease of direct giving with the benefits of a private foundation – with less work and time commitment. Because the funds are sponsored by a charitable organization, donors avoid the cost and upkeep of creating a foundation, but still have a hand in the grant-making decisions and can even name the fund itself. To get started, you make an irrevocable contribution (e.g., cash or marketable securities) to the fund. You take an immediate tax deduction, subject to income limitations; the fund sells and reinvests the assets, and you help direct when and how the proceeds are used, often with a few simple clicks online.*
Bunching. If you’re charitably inclined but won’t have sufficient itemized deductions to exceed the increased standard deduction, you may wish to bunch deductions by making a large charitable gift during a single year, equal to the total donations you would have made over several years. This can help you take advantage of itemizing in the year of your large donation, while taking the standard deduction in future years. This strategy can work particularly well with donor advised funds, described above.
Volunteering. Donating your time can give you an insider’s view of the organization, its people and practices. Plus, it feels good to give back.
Seriously Sophisticated
Charitable remainder trusts. A significant step up for serious donors, this popular, irrevocable trust allows you to donate an asset, which the trustee will sell and reinvest the proceeds in an income-producing portfolio. You then receive the tax deduction, as well as a percentage or fixed amount of income. When you pass away, the remaining funds go to the designated charity.
Charitable lead trusts. As with the CRT, you gift an asset which then funds a portfolio, but the CLT reverses the payout order. The charity receives the annual (or lead interest) income for a set number of years; afterward, the remainder passes back to you or other designated beneficiaries.
Gifting life insurance. If you have a policy that is no longer needed for its original purpose, you can use it to maximize a charitable gift and minimize exposure to estate taxes by transferring ownership to a charitable organization or naming the organization as beneficiary. There are other strategies as well. Ask your tax and financial advisors about wealth replacement and maximum gifting using life insurance.
Charitable gift annuity. This is a simple contract between a donor and a qualified charity. The donor contributes cash or assets and is entitled to a charitable tax deduction (subject to income limitations) for a portion of the donation. The charity agrees to pay a fixed sum to designated recipients annually. Any remainder reverts to the charity.
Giving Wisely
As mentioned, year-end giving benefits you with a tax deduction. Because everyone’s tax situation is unique and the codes are complex, work with your financial and tax advisors first to determine how to give and at what level. Doing so can help you live comfortably while giving wisely.
Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
* Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact Raymond James.
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