David J. Blount, CFP®
LPL Financial Advisor
In a world where giving back is a powerful force for positive change, the desire to make a meaningful impact through charitable giving has never been stronger. Whether you’re a seasoned philanthropist or considering stepping into the act of giving for the first time, the effectiveness of your generosity could be improved upon with these strategic approaches.
At Investment & Insurance Planning Services, we recognize that everyone’s journey in charitable giving is unique, and there’s no one-size-fits-all formula. In this article, we share three strategies to consider so you can elevate the impact of your charitable contributions while aligning your decisions with your values and financial goals.
Discover All the Ways to Give
First, know that when planning your giving, the more intentional you are, the better. Donating to a charity can be personally fulfilling, but there are also tax benefits to be harnessed that financial planning can help you attain. For example, charitable giving is tax-deductible, but only if you itemize your deduction. When you take the standard deduction, your charitable giving has no effect on your taxes. That being said, before simply writing a check to support your favorite charity, consider incorporating one of these giving strategies that could enhance your generosity.
Donor-Advised Funds (DAFs)
Donor-advised funds (DAF) are charitable giving programs that allow you to combine the tax benefits of giving with the flexibility to support your favorite charities.
Contributions to your DAF provide a current year’s tax deduction and are then invested to grow tax-free. This may result in more dollars for the organizations you support when you decide to transfer the assets. The funds allow you to contribute anything from cash to appreciated securities to real estate to life insurance that can help to further lower your tax bill. If you donate cash, you typically receive an income tax deduction of up to 60% of your adjusted gross income (AGI). If you donate appreciated securities, you could save on the capital gains tax and your deduction could be the full fair market value, up to 30% of your AGI.
Once the money is out of your hands, you don’t have legal control over it. But you are the decision-maker when it comes to how the funds are invested and when they are distributed to the charities you recommend. According to the legal setup of these accounts, the organization that holds your DAF isn’t required to follow your “advice,” but there’s an understanding that they will.
Qualified Charitable Distributions
If you own an IRA, you can use a qualified charitable distribution (QCD) to receive a tax benefit for your charitable giving, even if you take the standard deduction. A QCD is a distribution made from your IRA account directly to your charity of choice. It can count toward your required minimum distribution (RMD) for the year and it does not count toward taxable income. This can be a suitable strategy for those with sufficient income streams who don’t want to pay excessive taxes.
Charitable Remainder Trusts
A charitable remainder trust (CRT) is a trust that not only provides an income stream but passes the remaining value to charities of your choice when you or your beneficiary dies. It allows you to convert an appreciated asset into lifetime income.
With the trust, you technically donate the asset to charity before it is sold, which allows you certain tax benefits, including a charitable deduction. You can receive more income over your lifetime by using a charitable remainder trust than if you had sold the asset yourself, and you even gain creditor protection for it.
It also provides other important tax benefits and, best of all, you get to contribute to charitable causes that are near and dear to your heart. And unlike DAFs, you have control of the trust. Your trustee manages the assets but they must follow the instructions you have indicated and make changes per your direction.
Most of your charitable contributions can be filed with your taxes, qualifying you for certain tax deductions and potentially reducing your overall tax bill. Make sure to always ask for a receipt anytime you give a donation (cash or non-cash) and file it safely with the rest of your financial documents and with your financial professional. Once tax season arrives, bring your receipts and your paperwork to your CPA so you can get an accurate picture as to which tax deductions you qualify for. Always include a copy of your receipts with your tax forms as proof.
A Custom Strategy to Increase Your Impact
Every person’s situation is different, so using a cookie-cutter approach isn’t going to produce the best results. Plus, considering how your finances look right now, there might be additional ways to make your charitable donations count even more.
Our team at Investment & Insurance Planning Services is here to create a custom strategy that addresses your needs. We’d love to chat with you, understand your situation, and figure out how to get the most out of your money for your charitable goals. To schedule a free consultation, reach out to us at service@davidblountIIPS.com or (407) 542-3249. You can also send us a message here.
David is President and CEO of Investment & Insurance Planning Services, LLC (IIPS), an independent and fee-based firm that helps clients establish their financial goals and creates custom financial plans to help them pursue those goals. They specialize in working with pre-retirees, individuals in a career transition, L3 Harris engineers, and JetBlue pilots. David’s motivation comes from seeing his clients pursue their goals. He says, “It’s very rewarding to help people make successful transitions from one career to another, start a small business, or retire.”
David received his bachelor’s degree from Troy University, and prior to becoming a financial planner in 2000, he had a nine-year career in the United States Coast Guard. He obtained the CERTIFIED FINANCIAL PLANNER™ designation in 2007. He has served as the guest financial expert on Orange Television’s Adult Lifestyle Magazine Show and frequently provides financial and retirement planning workshops. Outside of work, he enjoys spending time with his wife, Michelle, their two kids, Ryan and Alana, their dog, Jack, and visiting with friends. An avid outdoorsman, he enjoys fishing, hiking, exercise, and as a committed person of faith, he enjoys attending church and is passionate about helping people in his community. To learn more about David, connect with him on LinkedIn.
This material was prepared for David Blount’s use.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.