taxes

5 Ways to Maximize Your Charitable Giving

A donor advised fund is my go-to charitable giving vehicle for many reasons, but there are a few other ways to gift to charities and do the most good ... for them and for you, too.

I’ll never forget the time I stepped down from a junior board position. It was a difficult decision, because I supported the charity’s mission. Yet fundraising wasn’t my area of genius, and my time was better spent with family. Have you ever stepped away from a meaningful cause, instead opting to financially support their mission?

Your motives for giving may differ from mine, but you care deeply about using your gifts to benefit others. Below are five ways to maximize your financial charitable contributions.

1. Make non-cash gifts (including stock) part of your giving plan

Cash gifts are great and can be helpful to non-profits. However, there are other non-cash methods to benefit charities. You have probably donated household items and clothing to charities in the past. However, are you keeping a detailed list of the items being donated, their thrift shop fair market value, the original purchase price and the donation date? If not, you’re overlooking important tax documentation (consult IRS Publication 526 for details).

Looking for another non-cash option? Gift appreciated stock. This means you won’t pay long-term capital gains tax on the stock appreciation.

For instance, you want to make a $1,000 donation, and you hold $1,000 of General Electric stock. Your cost basis in the stock is only $600. Rather than selling the stock and incurring $400 in gains subject to long-term capital gains tax, you give the stock directly to the charity. The charitable organization is not required to pay capital gains tax due to its non-profit status. You still receive a $1,000 charitable deduction and avoid paying $100 in taxes ($400 gain multiplied by a blended 25% federal and state tax rate).

2. Create impact with your contributions

You likely have a big heart and want to give to several different causes. Yet, there are so many valuable causes in the world. Your contribution will go further if you select a few causes and give meaningfully to them. Consider consulting Charity Navigator for independent rankings on the non-profit’s level of transparency and accountability.

Your time is more valuable than writing 50 different $100 checks and tracking them for income tax purposes. Furthermore, you can get more involved with the charity’s mission and perhaps serve on the board. You will know where your dollars are going, and you understand the direct impact your donation has on each intended recipient.

3. Open a donor-advised fund

If creating impact resonates with you, a donor-advised fund (DAF) may be a wonderful method to carry out your charitable intentions. Working with families of significant wealth for several years, I assist clients with the implementation of various philanthropic strategies. The DAF is my vehicle of choice for its simplicity and ease of use.

DAFs are ideal if you have not already committed a specific dollar amount to a charity in writing and you want to give substantially to more than one charity. Fidelity allows you to open a DAF for as little as $5,000. You make an initial contribution (i.e., cash, stock, or mutual fund) and invest it into one of the DAF’s pre-approved investment options. The charitable contribution is immediately deductible even if you delay a charitable grant request until the following tax year. When you are ready to distribute money to charity, contact the DAF sponsor (e.g., Fidelity in this case) and submit a grant request. You can make multiple grant requests if you wish to support multiple charities.

For example, you want to donate $5,000 each to five different charities over the next two years. You own appreciated stock valued at $25,000, and you contribute it to a donor advised fund in 2018. Your first charitable grant request is submitted in November 2018, and the other four grant requests are submitted in February 2019. Your $25,000 charitable contribution deduction applies to the 2018 tax year even though four of the charities did not technically receive the money until early 2019.

Like any investment, the value of the DAF fluctuates. Let’s suppose you chose a risky investment and the account declines in value to $24,000 in February 2019. You either wait for the rebound or shortchange one of the charities and give it only $4,000. And vice versa: If your initial contribution increases to $26,000, you have an extra $1,000 to allocate. Opting for a lower-risk investment mix may be better for short-term donations. This technique and other charitable giving strategies are often best left to the oversight of a financial adviser who is skilled at guiding you through the process.

4. Carefully contemplate timing

Many donations are made in the last few weeks of the year, but the needs of a non-profit are year-round. Some non-profits promote Giving Tuesday, held the Tuesday after Thanksgiving, to spur giving outside of December. Ultimately, as the donor, you are responsible for the timing of your donation.

Instead of waiting until the last minute for your charitable contribution, think about making a one-time donation during an untraditional time (i.e., spring or summer). If you insist on cash gifts, enroll in automatic monthly or quarterly payments to the charitable institution. This smooths cash flow for both you and the charity!

5 Stack deductions in one tax year

The Tax Cuts and Jobs Act (TCJA) has substantial implications for U.S. families, and non-profits are concerned that charitable giving will decline with the enhanced standard deduction. With proper planning, you can fulfill philanthropic goals and still receive an income tax benefit.

If you are close to the new $24,000 standard deduction threshold as a married couple (or $12,000 standard deduction as a single person), consider doubling or tripling your charitable contributions in a particular tax year. You’ll itemize deductions in the year you maximize charitable contributions and then resort to the standard deduction in the subsequent tax year. Donor-advised funds (DAF), illustrated above, are especially beneficial if you want to “stack” charitable donations. You take the tax deduction in the year you contribute to the DAF regardless of the date the charity receives a grant.

About the Author

Deborah L. Meyer, CPA/PFS, CFP®

CEO, WorthyNest LLC

Deborah L. Meyer, CFP®, CPA/PFS, CEPA and AFCPE® Member, is the award-winning author of Redefining Family Wealth: A Parent’s Guide to Purposeful Living. Deb is the CEO of WorthyNest®, a fee-only, fiduciary wealth management firm that helps Christian parents and Christian entrepreneurs across the U.S. integrate faith and family into financial decision-making. She also provides accounting, exit planning and tax strategies to family-owned businesses through SV CPA Services

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