7 Tax Advantage Ways of Giving To Charity

Gary Vawter |

Most nonprofit organizations today offer a variety of planned giving options that supporters can take advantage of. If you’re committed to supporting an organization into perpetuity, planned giving provides you with the option to do so.

While consulting with your tax preparer and financial advisor is recommended before making any planned giving decisions, it can be helpful to gain some understanding about the various options that are available, and which of these options are more likely to suit your own particular financial needs and personal philanthropic philosophy.

The following are just a few of the ways you can continue to give back to your favorite causes:

Leave the organization a bequest – one of the easiest ways to support your favorite organization is to simply name them in your will. You can choose to leave a stated amount to the organization or leave a percentage of your estate.  However, this may not be the most tax advantageous way.

Stocks & Mutual Funds – Donating appreciated stocks or mutual funds will increase the impact of your gift to the organization while also providing you with significant tax savings. In most cases, you will be able to transfer the securities directly to the charitable organization.  This could help you avoid capital gains tax of up to 20%.

Retirement Plans – Another tax-efficient way to leave money to your favorite charity is by naming them as a beneficiary of your traditional IRA or 401k (note: it is not a good idea to use a Roth IRA for this strategy).  Since the not-for-profit does not have to pay taxes, this could be one of the most tax-efficient ways to leave money to charity.  However, if you are also naming a family member as partial beneficiary, you must follow some very careful rules to ensure you do not disrupt their ability to save of taxes.  Make sure to talk with your VF advisor or tax professional.

A Charitable Gift Annuity – A bit more complicated than a simple bequest, a charitable gift annuity allows donors to gift the nonprofit of their choice with a significant sum of money. The minimum charitable gift annuity is typically $10,000. Once that donation has been received, the nonprofit then will provide you with a set income determined by the money donated. This payment ends upon death, with the nonprofit then retaining the balance left in the annuity. It’s important to check with your VF financial advisor about the taxation of charitable gift annuities as this is usually not the best tax option. You may also want to check with the organization that would receive the funds, as not every organization has the resources in place to accept charitable gift annuities.

A Charitable Remainder Trust – A charitable remainder trust is similar to a charitable gift annuity, though because of the expense of administering a separate trust, the minimum donation amount typically starts at $100,000, with the donor receiving an annual amount until the trust is completed, with the nonprofit receiving the remaining funds.  Again, the tax benefits of the charitable remainder trust is usually not as beneficial as other methods of charitable giving.

Real & Personal Property – While not gifted as frequently as stocks and securities, some do choose to leave real property to a beloved nonprofit organization. Real property can include buildings, land, businesses, art and other personal belongings. Again, be sure to check with the organization in question to ensure they can accept this type of donation.

Charitable Gift Fund (Donor Advised Fund) – As tax laws have changed, the Chartable Gift Fund has become a new tool for advanced tax planning.  You can give a large gift to charity in one tax year to claim the deduction, but then gift the funds out to your favorite charities over several years.  This could potentially allow you to avoid capital gains of up to 20% and an ordinary income tax of up to 37%! You also have the option to invest the money for long-term growth while you decide what charities you would like to benefit.

Being aware of the numerous planned giving options available will make it much easier for you to create a plan that will work best for you.  Make sure to share your charitable giving goals with your VF advisor so we can help you determine the best path forward.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.

The opinions expressed in our blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this blog is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.