WRITTEN BY: AUTUMN LAX, CFP, AIF®
The end of the year sparks something in a lot of us to start giving to charitable causes.
For many people, the holiday season brings out the desire to give our money or our time to those less fortunate or a meaningful cause.
But what if we were more purposeful with our giving strategy?
Charitable giving feels good to do and many of us are driven to give for reasons beyond our own financial benefit. However, having a good strategy in place and understanding the different ways charitable giving can affect your own finances will have a meaningful impact on your future as well. Here’s how to build charitable giving into your financial plan.
Follow these tips to maximize your charitable impact:
TIP #1: Make charitable giving a goal and part of your annual savings strategy.
Rather than wait until the end of the year to give, why not build it in as a goal, one you plan for year-round. Like any other goal, if giving is important to you don’t leave it up to chance at the end of the year. We help many clients build giving into their monthly cash flows and make sure the giving fits in with the rest of the financial needs.
TIP #2: Get a Charitable Tax Deduction
Charitable gifts can be deducted on your tax return, whether it’s a gift of cash or donation of goods. First, make sure your organization qualifies. Usually this means being a 501c3 tax exempt organization. There are certain limits to how much you can deduct in charitable gifts, and you typically must itemize in order to get the deduction. So, be sure to consult with a tax advisor if this is part of your financial strategy.
TIP #3: Make a Qualified Charitable Distribution from your retirement account.
When you reach age 72, the IRS mandates distributions are taken from certain retirement accounts. Theses distributions are taxable income to you and for some, you may not need or want the extra income. With a Qualified Charitable Distribution, you can elect to send some or all of your RMD (required minimum distribution) to a charity and bypass the income taxation you would have otherwise received. To make this work, your financial institution issues the check directly to the charity. You can donate up to $100,000 of your retirement assets each year and you can select to give to multiple charities in any amount, as long as they are a qualified organization. Suppose, however, you do want to take a portion of your retirement income distribution…and you give to charity on your own anyway. Why not go with a partial QCD and help to reduce some of your tax burden!
TIP #4: Giving cash vs appreciated stock
Many people gift cash outright to the charity of their choice but next time you revisit your financial plan, consider giving appreciated stock. If you own stock that has appreciated a lot over time, whenever you sell it, you will pay taxes on those gains. Instead, you could gift the stock and transfer that gain to the recipient. The good news here, is you don’t have to choose a charitable organization to get the benefits, you can also give appreciated stock to family or friends. Gifting stock is a way to give a financial gift to someone else while also reducing a potentially large capital gains tax bill from your own financial situation. This strategy works well if the recipient is, for example, a child who is in a lower tax bracket than you. Tax exempt charities won’t have to worry about the large gains either, since they are already exempt.
A strategy for charitable giving can help you align your financial interests with your desire to do good. Charitable donations allow you to reduce your current tax burden and potential future estate taxes as well. Let us know if you’d like to talk about how to incorporate giving into your Financial Life Plan. You can book a call with our team here.