Watch this quick 2-minute introduction to strategic charitable giving when you have assets or qualified retirement savings, then read more below.
Read the Transcript for “What’s the Most Strategic Way to Give to Charities?“
Hi, I’m David Witter, founder and CEO of Financial Harvest Wealth Advisors.
If you’re like some people, you’re like, “Hey, I really have causes that I care about, but when I give to charity, I want to know what’s the best way to give to charities or what’s the more strategic way to give to charities?”
So the first thing I would say is if you have appreciated assets, meaning like stocks that have increased in value, or maybe a private business interest, that could be a more effective way to give to charity, as opposed to just writing a check. As we like to say, “Friends don’t let friends give cash to charity.”
The reason for that is if you have appreciated stock or appreciated business interests and give that to a charity, not only will you possibly get the charitable deduction on your itemized deductions, but you also can avoid that capital gains of the appreciation on that asset.
Another way is some of you here listening might be in your retirement years. There’s something called a qualified charitable distribution. Oftentimes we see our retired clients, they may be in a spot where they don’t do itemized deductions anymore. And they’re worried like, “Hey, if I write a check to the charity, I’m not really getting any tax benefit for it.”
Well, one way to still capture that tax benefit is to actually give directly from a retirement account; an IRA is an example. And when you do that qualified charitable distribution from the IRA over to the charity, in essence you’re quote “avoiding that income”, it doesn’t show up on your tax return, which basically makes it tax deductible for you as we like to say.
So, as you can see, there’s more strategic ways to give to charity other than just writing a check. So make sure that you’re on top of the best ways to be giving to your charity, the charitable organizations that you care most about. I’m David Witter, founder and CEO of Financial Harvest Wealth Advisors.
What is “Strategic Giving”? Is there really more tax-advantaged charitable giving than just deductions of cash donations?
Important note: Tax code is subject to change and revision. Always consult your tax advisor or financial professional for the most current updates and pending changes.
Most people are familiar with donating to charity in 3 ways:
- Cash – one time or recurring direct contributions
- Goods – food drives, or used clothing donations
- Time – volunteering for local organizations
All are wonderful and admirable ways to contribute, but are they the most strategic charitable giving methods when it comes to tax deductions or reducing tax obligations? Not really.
Three things exist that you may have overlooked when you reached for your checkbook to donate to a cause:
- Specific types of donations may help you avoid capital gains tax
- Such donations may also qualify as charitable giving deductions
- And donations from certain types of tax-advantaged accounts allow you to avoid income tax
Who Can Give to Charities through these Tax-savvy Methods?
If you’ve built wealth through investment or business growth, you may be able to donate to causes and organizations you care about in ways that benefit both you and the organization receiving the donation even more than if you had given more traditionally as a direct cash gift.
Individuals who have set aside money in tax-advantaged retirement accounts may also have an avenue for giving to charities in a way that allows for maximum charitable contributions without first paying tax on those savings.
Avoid Capital Gains on Asset Appreciation and Take Advantage of Itemized Deductions
Depending on the structure and nature of your investments, appreciated assets are subject to capital gains taxes as they grow or when they are accessed for distributions. However, directly donating the value of those appreciated assets may not only allow you to provide a significant donation, but also allows you to write off the donated value as a charitable contribution while avoiding capital gains tax.
Qualified assets and taxation rules can vary depending on your situation, so always consult a financial professional before attempting to donate or write off anything.
Explore tax, financial, and investment terms
Strategic Charitable Giving Through Qualified Distributions from Retirement Accounts
If you are already in your retirement years, you may be enjoying a simpler tax filing situation, and no longer itemizing deductions. Of course, with this simplicity may come missed opportunities, like no longer claiming your charitable giving as a deduction.
One way to still give in a tax-savvy way is through something called a qualified charitable distribution. You may be able to give directly from a tax-advantaged account, such as some types of IRA, directly to charity, and by not taking that amount as personal income, avoid the withdrawal taxation.
Would you like to speak with someone about starting a tax-advantaged charitable giving plan?
Find out more about how Financial Harvest can help you with all your wealth and financial planning needs.
As you see, there are more strategic ways to give to a charity rather than writing a check. Learn more about the best ways to give to your favorite charitable organizations and the causes closest to you heart.
Read more about charitable giving methods and strategies to maximize your giving potential.
This information is intended to be used for educational purposes only and does not constitute tax, legal, or investment advice.