Expanding Generosity with Tax-Efficient Giving Strategies

Individuals and families in the U.S. gave over $350 billion dollars last year to charity, but it should be noted that total “family” worth in the U.S. is estimated to be just over $200 trillion dollars. Moreover, it is expected over the next 20 years that $84 trillion dollars in wealth will be transferred to the next generation. Thus, it is vital that the current and future financial stewards of this enormous amount of wealth realize the importance and joy of giving generously, and also understand the various strategies that can benefit both the charity and donor in a more tax-efficient manner. Below are ten such giving strategies to consider as we grow in our generosity together.

…For unto whomsoever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more. Luke 12:48b

1. Cash Charitable Gifts

Cash donations are typically deductible up to 60% of the donor's Adjusted Gross Income (AGI) if they itemize on their tax return (cannot take this tax deduction when taking the standard deduction). Also note that any amounts exceeding the 60% level may be carried forward for up to five years.

2. Qualified Charitable Distributions (QCDs)

This tax-efficient giving strategy is available to those who are at least 70.5 years old and have an IRA account. These donations are directly sent from their IRA to qualified charities and can also satisfy their Required Minimum Distributions (RMDs). The QCD limit for 2024 is $105,000 for an individual. QCDs will reduce their taxable income by the amount given up to the limit mentioned above. ?

3. Donating Appreciated Assets

This strategy works well for highly appreciated stocks, mutual funds, real estate or other investments. One can avoid paying any capital gains tax and can receive a tax deduction (up to 30% of AGI equal to the Fair Market Value or FMV of the asset if held for more than a year) with a 5-year carryover for any excess amounts. ?

4. Giving Through Your Will

Making a charitable gift through a will is called a bequest. One can leave cash, assets, or other property to charities through one's will. This strategy will reduce the size of one’s taxable estate and may decrease one’s estate tax liability for heirs. ?

5. Donor-Advised Fund (DAF)

One can typically set up a DAF with the help of their financial advisor. This strategy works well when “bunching” contributions for multiple years into one year (so one can itemize) as one can take an immediate deduction for all these contributions but disburse to charities over a number of years. One can also donate appreciated assets to a DAF to increase tax savings.

6. Charitable Remainder Trust (CRT)

A CRT pays income to beneficiaries for a specified term or lifetime, and then “remaining” assets go to a charity at the end of the term. The donor can get an immediate charitable deduction for a portion of the assets contributed to the CRT, and they may be able to avoid or defer capital gains taxes on donated appreciated assets. ?

7. Charitable Lead Trust (CLT)

A CLT involves making large charitable gifts upfront and then leaves the majority of the assets to their beneficiaries later. A CLT can assist in reducing estate taxes and allowing more assets to pass to heirs tax free.

8. Charitable Gift Annuity

One may be able to transfer assets to a qualified charity in exchange for fixed lifetime payments, and there may be a partial tax deduction for one’s gift. Part of one’s annuity payments may also be tax-free for a period.

9. Establish a Private Foundation

A private foundation allows for an immediate deduction for contributions but note these deductions are limited to 30% of AGI for cash and 20% for appreciated assets. This is often helpful to families with large estates who desire to have a legacy impact for generations to come.

10. Gifts of Tangible Personal Property

Finally, one can give valuable personal property like jewelry, collectibles, art, vehicles, etc. and receive a deduction of the FMV of the assets (within limits) if it is used for the charities mission. Note deductions are limited to cost basis if not used for their mission.

?

Disclaimer: This article is for educational purposes only. See your CPA/Financial Advisor before making any financial decisions related to your specific circumstances.

?