By Matthew Gaude & Shawn McGuire
Giving of your wealth to charities benefits the people and causes you are passionate about and allows you to leave a legacy with your years of hard work—it’s a win-win. And did you know that charitable giving is also integral to your financial plan? Whether it’s part of your estate planning, generational wealth planning, or tax planning, you can give in a way that benefits both you and the recipient. Whether you’ve been giving to charities or other organizations for years, or you want to start now to do your part to help those in need, let’s discuss three 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 50% 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. You will receive more income over your lifetime by using 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.
All of your charitable contributions can be filed with your taxes, qualifying you for certain tax deductions and reducing 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.
Which Strategy Is Best For You?
Just as there are countless great causes to give to, there are countless factors that can determine which of these strategies is the best fit for you. Given your unique situation, it’s wise to seek advice from a financial professional, who may be able to find other ways to maximize your charitable contributions even more. Our team at Live Oak Wealth Management would be happy to meet with you, discuss your circumstances, and see how we can help you maximize your money. Call our office at 770-552-5968 or email email@example.com. Or, if you prefer, you can simply click here to schedule an appointment online.
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insight and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc. (APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk, and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. Seek tax advice from a tax professional.