Five Ways to Do More Good (And Save On Taxes, Too)
Michael Bloomberg kicked off Giving Tuesday with his $1.8B gift to his alma mater, Johns Hopkins University. The holiday season reminds us that the more good we do, the more good there is in the world. Michael reported that his passion for this particular gift is to ensure that full financial assistance can be provided for students at the school, so that they may attend college without financial stress and graduate debt-free.
Most of us are passionate about one or more social initiatives. We support these important causes both with our volunteer time and our charitable giving. To further encourage our support, charitable contributions remain one of the few tax deductions for those who will still itemize on their tax returns.
Here are a number of different ways you might choose to do more good this year. Of course, you should be sure to always consult with your tax advisor to see if these strategies are appropriate for your personal circumstances.
1) Check-writing philanthropy.
It is always convenient and effective to send a check or online donation to your favorite qualified not-for-profit.
Be sure to keep a record of your donation so that you have documentation for every donation that you list on your tax return.
2) Donate appreciated securities.
If you have owned an investment for more than a year and it has a large gain, it might be a great source of wealth for your charitable giving. When you donate a security to a qualified not-for-profit organization, you do not have to pay taxes on any of the gain from your cost basis.
Additionally, you will receive a tax deduction for the full market value of the investment. Both you and the charity benefit.
3) Donate required IRA distributions.
If you are required to take distributions from your IRA, you can direct up to $100,000 of IRA assets per year to a qualified charitable organization instead of taking a taxable withdrawal. The gift counts toward your required distribution and is entirely tax-free to you.
In this way, the charity fully benefits from your donation and you avoid paying ordinary income tax on a required distribution. Note that while you avoid the usual income tax on the withdrawal, you can’t also report the gift as a tax-deductible charitable contribution.
4) Contribute to a donor fund.
If you know that you will be regularly supporting a number of charitable organizations, but you haven’t decided on the exact timing or amount, you might enjoy using a Donor Advised Fund. These “funds” are available through many community foundations and most brokerage firms’ foundations.
You open a donor fund in your name, contribute any time you choose, and then benefit from an immediate tax deduction. Later, as you decide what organizations you would like to support, you request that the fund deliver your specific donation directly.
Donor Advised Funds are particularly convenient as the busy year-end approaches. You might choose to make a single large contribution before year-end to ensure your tax deduction for the year - then you can take a more leisurely approach to allocating your specific gifts when you have more relaxed time to consider your priorities.
If you tend to donate to the same charities each year, a donor advised fund can also make the record-keeping particularly convenient over time.
5) Creating a private foundation.
If you have a number of strategic philanthropic goals, want to create a personal legacy, or want to create a charitable vehicle to bring your family together for generations to come, you might consider starting a private foundation.
Like a Donor Advised Fund, contributions to a private foundation are immediately tax deductible and distribution decisions can be made later. Private foundations, however, have a number of other features that may be attractive to long-term donors.
Gifts can be made to a wider variety of recipients, private foundations can offer loans to family members in certain circumstances, and private foundations can provide “reasonable compensation” to staff who help run the foundation - even when the staff might be a family member. Private foundations must be established legally, make annual tax filings, and generally distribute 5% of average investment assets annually.
The holidays remind us to think of others and the greater needs of society. For many people, the weeks after are also filled with phone calls to accountants for year-end tax planning. Remember, just as there is a holiday PJ that will fit everyone on your list, there is a gifting strategy that will fit you.
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Liz Miller is the president of Summit Place Financial Advisors, which offers an individualized goal-oriented approach to managing wealth for a select group of clients.
Have more questions? Follow up with the expert herself.
Summit Place Financial Advisors
Summit Place Financial Advisors offers an individualized goal-oriented approach to managing wealth for a select group of clients. With over 25 years’ experience, Liz leads a team that offers seamless solutions that are consistently focused on your goals no matter what your stage of life. Continue Reading
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