Unlocking the Power of Tax-Intelligent Charitable Giving

As we approach the year’s end, it’s the perfect moment to evaluate your charitable giving strategies. Charitable giving is a powerful way to make a positive impact on the causes you care about, while also reaping significant tax benefits. Here, we explore some advantages to charitable giving and tax-intelligent tactics to elevate the impact of your charitable contributions.

Tax Advantages of Charitable Giving

Charitable giving is a valuable tool for reducing your tax burden while supporting the causes you hold dear. Donations to qualified charitable organizations can make you eligible for deductions on your federal income tax return, lowering your overall tax liability. Some specific tax-smart charitable giving strategies include:

Donor-Advised Funds (DAF)

A Donor-Advised Fund (DAF) is a flexible and tax-optimized way to manage your charitable giving. It allows you to make a charitable contribution to a specialized fund, typically managed by financial institutions or charitable organizations. While you receive an immediate income tax deduction for your contribution, you can advise the fund on how to distribute the assets to your preferred charities over time.

One significant advantage of DAFs is the ability to contribute appreciated assets, such as stocks or real estate, without triggering capital gains tax. By gifting these assets to your DAF, you can support your charitable endeavors while reducing your tax liability.

Bunching

Bunching involves consolidating charitable donations for two years into a single year to surpass the standard deduction threshold. This approach allows you to itemize deductions into a single year, resulting in significantly increased tax savings, while effectively supporting charities you care about.

Charitable Remainder Trust (CRT)

A Charitable Remainder Trust (CRT) is a tax-advantaged strategy that benefits both the donor and the charity. With a CRT, you transfer assets, such as appreciated securities or real estate, to an irrevocable trust. The trust then pays you or your beneficiaries an income stream for a set period or life. Afterward, the remaining assets in the trust go to the designated charity.

The primary tax benefit of a CRT is that you receive an immediate income tax deduction for the present value of the charity’s expected remainder interest. Additionally, you can enjoy a reduction in capital gains tax when you donate appreciated assets to the trust. CRTs are particularly attractive for those who want to secure a stream of income during retirement while making a substantial charitable contribution. However, CRT administration is also complicated and can be costly, so it’s important to consult a financial advisor to make sure this strategy is best suited for your needs.

Qualified Charitable Distribution (QCD)

Qualified Charitable Distributions (QCDs) present a tax-smart strategy for retirees with individual retirement accounts (IRAs). Instead of receiving a distribution from your IRA and including it as taxable income, you can make a tax-free transfer directly to a qualified charity.

This approach offers several tax advantages, including exclusion from your taxable income, satisfying Required Minimum Distribution (RMD) obligations efficiently, and still benefiting from the standard deduction, even if your itemized deductions do not surpass it. QCDs are a win-win for retirees who wish to support their preferred causes while minimizing taxable income during retirement.

At Darnall Sikes Wealth Partners, our financial advisors can help you navigate these tax-intelligent charitable giving strategies to make the most of your contributions, while supporting the causes you’re passionate about. Consult with us today to tailor these strategies to your unique financial situation and charitable objectives, to help make a meaningful impact on your chosen charities while enjoying significant tax savings.