The Benefits of Charitable Giving: Strategies to Maximize Impact and Minimize Taxes
As a financial advisor, I often talk to clients about the power of charitable giving, not just for the communities we serve but also for the financial advantages it can offer. Personally, charitable giving is close to my heart—my family and I are committed to giving back. As a 40-year-old with a young family, I understand the importance of balancing financial goals, maximizing tax benefits, and making an impact that matters. While there are more strategies for the uber rich, I find that these are the most approachable for the everyday person. Below, I’ll share three gifting strategies—Qualified Charitable Distributions (QCDs), charitable bunching, and contributions to donor-advised funds (DAFs)—that my family and many of my clients use to give strategically.
1. Qualified Charitable Distributions (QCDs)
For clients nearing retirement, QCDs can be a great tool. They allow individuals aged 70½ or older to transfer up to $100,000 annually from an IRA directly to a qualified charity. This counts toward their Required Minimum Distribution (RMD) but reduces taxable income—a double win.
Why It’s Beneficial:
● Keeps taxable income lower: Avoiding an increase in your Adjusted Gross Income (AGI) helps prevent higher Medicare premiums and Social Security taxation.
● Great for non-itemizers: Even if you take the standard deduction, a QCD offers a tax-efficient way to give.
● Satisfies RMD requirements: For retirees, QCDs count toward RMDs, reducing the risk of penalties for missed distributions.
How I Use This Strategy:
While I’m not yet eligible for QCDs, this is a conversation I have with my older clients as part of their annual RMD planning.
2. Charitable Bunching: Giving Strategically Across Years
With the standard deduction set at $27,700 for married couples filing jointly in 2024, many families—like mine—no longer itemize their deductions every year. That’s where charitable bunching comes in. Rather than making smaller donations annually, you can bunch multiple years’ donations into one year to exceed the standard deduction and maximize tax savings.
Why It’s Beneficial:
● Unlocks itemized deductions: By concentrating donations into one tax year, you’re more likely to benefit from itemizing.
● Flexible giving: Even though the tax benefit happens in one year, the charitable impact can be spread over several years.
How a Family Can Use This Strategy:
With young kids and various financial priorities, you can practice bunching to make the most of our giving. Plan a larger gift every few years and use smaller, non-deductible donations in the off years to stay connected with causes we care about.
3. Contributions to Donor-Advised Funds (DAFs)
DAFs are an excellent tool for individuals and families looking to manage charitable giving over time. You can contribute cash, stock, or other appreciated assets, take a tax deduction in the year of the contribution, and recommend grants to charities over time.
Why It’s Beneficial:
● Immediate tax deduction: You receive the deduction when you make the contribution, even if the grants are distributed later.
● Flexible giving: A DAF allows you to support multiple charities over time without having to make immediate decisions.
● Capital gains advantage: Donating appreciated stock avoids capital gains taxes, increasing the impact of your gift.
How We Use DAFs:
In high-income years, you can contribute to our family’s DAF, knowing you can make grants to your favorite charities gradually. This keeps us intentional about giving while also ensuring we maximize the tax benefits when it matters most.
Why You May Need an Advisor to Help with Gifting
As both an advisor and someone who is charitably inclined, I know that these strategies require thoughtful planning. Here’s how I help my clients navigate the complexities:
● Integrate gifting with financial goals: We look at your broader financial picture to ensure your giving aligns with your life and legacy goals.
● Plan for tax efficiency: I help you identify when to use QCDs, charitable bunching, or DAF contributions based on your income and deductions.
● Avoid common pitfalls: Not all charities are eligible for QCDs or DAF grants, and timing is critical to getting the tax benefits.
● Coordinate RMDs and donations: If you're nearing or in retirement, we’ll create a strategy to meet your RMDs while maximizing your charitable impact.
Conclusion
Charitable giving is about more than just tax savings—it’s about creating a meaningful impact for the people and causes you care about. Whether it’s through QCDs, charitable bunching, or donor-advised funds, there are ways to give back while making the most of your financial plan.
For my family, giving is an essential part of how we build a life of purpose. As your advisor, I’d love to help you explore these strategies and find what's appropriate to meet your charitable goals while working to increase your finances.
If you’d like to discuss how these gifting strategies can fit into your financial plan, let’s connect before year-end to make sure you maximize your impact—and your tax benefits—for this year.
Information provided should not be considered as tax advice from GWN Securities, Inc. or it's representatives. Please consult with your tax professional.