Jan 9, 2023
Top 5 ways to gift outside of cash
When people think about their personal philanthropy, they often envision giving weekly to their place of worship or writing checks to an organization during an annual fundraiser. However, many people don’t realize there are multiple ways to give, some of which provide financial benefits above and beyond a simple tax deduction. While it’s true that donating money is a very common way people support charitable organizations, we’ll highlight five great ways to give outside of your checking account or credit card.
With this strategy, stocks, mutual funds and ETFs are sent directly from your investment account to the charity’s brokerage account, where they are then sold by the charitable organization, which does not pay tax on any capital gains.1 The benefit of this strategy is twofold. Not only are you able to receive a tax deduction for the donation, but you also remove the unrealized capital gain from your portfolio, thus reducing your future tax liability. Of course, your chosen charity also benefits by receiving the full value of your sold securities, not just the after-tax portion.
Qualified charitable distribution (QCD)
A QCD is a type of distribution from an IRA to a qualified charitable organization that allows for special tax treatment.2 You are eligible to make QCDs starting at age 70 ½; however, the real benefit begins a few years later. Normally, when you reach age 72, you’re required to start taking distributions from your IRA, which generates income tax. However, by taking advantage of QCDs, any distribution sent to a qualified charity is exempt from taxation but will still count toward your annual requirement. You can make up to $100,000 in QCDs annually, making it a powerful tool for controlling your tax liability in retirement.3
Donor-advised fund (DAF)
A DAF is a unique vehicle that can be used as part of an overarching charitable giving strategy. The DAF owner contributes money, usually in a larger lump sum, and receives a tax deduction. The money is then held in the DAF until the account owner is ready to make individual donations to the charities of their choice. This is an ideal strategy for someone seeking a larger tax deduction in one particular year—perhaps to offset a unique income event like the sale of a business—but would like to spread out the gifts to organizations over several years.4 What’s more, you may combine the above technique of donating appreciated securities to a DAF to reduce your unrealized gains. Once the funds are in the DAF, they continue to grow tax-free.5
Estate planning and bequests
In our opinion, perhaps the most overlooked philanthropic opportunity is estate planning and bequests. Clients often tell us that they wish they could do more charitably, but they don’t have the funds to support it. By including your favorite causes as beneficiaries in your estate plan, you can ensure your charitable legacy lives on. This strategy also allows you to utilize non-liquid assets, such as personal property like artwork or even your primary residence. When considering this strategy, it’s important to work directly with the charity prior to making changes in your estate plan to ensure they can accept the type of bequest you’d like to make. It’s also a great opportunity to get your family involved in your philanthropy and make a well-coordinated plan together.
Time and talent
The final avenue for giving charitably that we’ll explore in this article is simply giving your time or talent. While the pandemic may have made this temporarily more difficult, there are ways to get involved that don’t require any monetary support. Be a mentor to youth in your neighborhood, offer to give advice in your field of expertise pro bono or simply spread the news of organizations in need via social media. You can also volunteer directly with the organization, such as working at a food bank or helping with a toy drive for kids. Donating your time and talent is one of the best ways to make an immediate impact in your community.
There’s little in life that is as rewarding as giving back to those in need. While financial and tax considerations are usually a secondary priority when thinking about philanthropy, the techniques discussed above can help increase the impact you can make. By being strategic in how you give, both you and the charitable organizations you support can benefit. That’s likely the best (and most gratifying) outcome you could hope for.
ABOUT THE AUTHOR
Breanna Coffey, MBA, CFP
Breanna, a Wealth Manager at BDF, is passionate about helping clients feel confident in their financial future and specializes in philanthropic giving by working with clients to craft strategic plans to make their giving more impactful. Breanna is also a Captain of one of our Team Ensembles. She earned her undergraduate degree from Purdue University, her MBA from University of Indianapolis and CERTIFIED FINANCIAL PLANNER™ certification at Northwestern University. Breanna was also recognized in Investment News 40 under 40 list in 2022.
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