By Brett Gottlieb
Now more than ever, with so many people and organizations struggling economically, you may be moved to share your wealth to benefit people, charities, and causes you are passionate about as a legacy of your years of hard work. Maybe you’ve been giving to charities or other organizations for years, or maybe you want to start now to do your part to help those in need. No matter your situation, you can give in a way that benefits both you and the recipient—it’s a win-win! In fact, charitable giving can be integral to your financial plan, whether it’s part of your estate planning, generational wealth planning, or tax planning.
Let’s discuss four ways you can maximize your charitable giving.
Discover All The Ways To Give
First, know that when planning your giving, the more intentional you are, the better. Donating to a charity can be personally fulfilling, but there are also tax benefits to be harnessed that financial planning can help you attain. For example, charitable giving is tax-deductible, but only if you itemize your deduction. When you take the standard deduction, your charitable giving has no effect on your taxes. That being said, before simply writing a check to support your favorite charity, consider incorporating one of these giving strategies that could maximize your generosity.
Donor-Advised Funds (DAFs)
Donor-advised funds (DAF) are charitable giving programs that allow you to combine the tax benefits of giving with the flexibility to support your favorite charities.
Contributions to your DAF can provide a current year’s tax deduction, then be invested to grow tax-free. This may result in more dollars for the organizations you support when you decide to transfer the assets. The funds allow you to contribute anything from cash, to appreciated securities, to real estate, to life insurance that can help to further lower your tax bill. If you donate cash, you typically receive an income tax deduction of up to 60% of your adjusted gross income (AGI). If you donate appreciated securities, you save on the capital gains tax and your deduction will be the full fair market value, up to 30% of your AGI.
Once the money is out of your hands, you don’t have legal control over it. But you are the decision-maker when it comes to how the funds are invested and when they are distributed to the charities you recommend. According to the legal setup of these accounts, the organization that holds your DAF isn’t required to follow your “advice” but there’s an understanding that they will.
Gifting Your RMD
A simple example that takes advantage of tax benefits and minimizes your taxable income involves the required minimum distributions (RMDs) you are required by law to withdraw from your retirement accounts when you turn 72. But what if you don’t need that money for living expenses? Current tax law allows you to gift your RMD directly to a charity and avoid paying taxes on the distribution. This can be a great strategy for those with sufficient income streams who don’t want to pay excessive taxes.
Qualified Charitable Distributions
If you own an IRA, you can use a qualified charitable distribution (QCD) to receive a tax benefit for your charitable giving, even if you take the standard deduction. A QCD is a distribution made from your IRA account directly to your charity of choice. It can count toward your required minimum distribution (RMD) for the year and it does not count toward taxable income. As such, you don’t have to pay any taxes on it.
Charitable Remainder Trusts
A charitable remainder trust (CRT) is a trust that not only provides an income stream but passes the remaining value to charities of your choice when you or your beneficiary dies. It allows you to convert an appreciated asset into lifetime income. With the trust, you technically donate the asset to charity before it is sold, which allows you certain tax benefits, including a charitable deduction. It can be more beneficial to use a charitable remainder trust than if you had sold the asset yourself, and you even gain creditor protection for it. It also provides other important tax benefits and, best of all, you get to contribute to charitable causes that are near and dear to your heart. And unlike DAFs, you always have control of the trust. Your trustee manages the assets, but they must follow the instructions you have indicated and make changes per your direction. If you are interested in setting up a charitable trust, consult with a qualified legal professional.
All of your charitable contributions can be filed with your taxes, and may qualify you for certain tax deductions and potentially reduce your overall tax bill. Make sure to always ask for a receipt any time you give a donation (cash or non-cash) and file it safely with the rest of your financial documents and with your financial professional. Once tax season arrives, bring your receipts and your paperwork to your CPA so you can get an accurate picture as to which tax deductions you qualify for. Always include a copy of your receipts with your tax forms as proof.
What Strategy Will You Use?
Everyone’s circumstances are unique, so a cookie-cutter formula just won’t do. And depending on the current state of your financial portfolio, there may be other ways to maximize your charitable contributions even more. Our team at Comprehensive Advisor would be happy to meet with you, take a look at your situation, and see how we can help you maximize your money. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to request a complimentary consultation.
About Our Advisors
Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.
With a combined experience of over three decades in the financial services industry, our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc. generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 735182-10/20
Ready to take
The Next Step?
For more information about any of the products and services we provide, schedule a visit today or register to attend a live informational event.