5 Ways Charitable Giving Can Be Part of Your Financial Strategy

When professional baseball player Austin Barnes extended his contract with the Los Angeles Dodgers for two years, he specifically included in the agreement a commitment on his part to make charitable donations.

It was a generous and financially savvy decision at the same time. He can put his money at the service of causes he believes in, while benefiting from tax advantages.

Most of us don’t have multi-million dollar professional sports contracts like Barnes, but there are ways to increase your own donations and, at the same time, lower your tax bill.

After all, you probably have a dear cause—a church, animal rescue organization, homeless shelter, or other nonprofit—that you want to help. With charitable giving, you can specifically choose how your money is used, which is not the case with your tax money, which just goes into the big tax pot in Washington.

Think of it this way: If you were told you couldn’t keep $10,000 anyway, wouldn’t you rather have a say in exactly how it’s spent?

With that in mind, here are five ways to make charitable giving a key part of your financial plan:

1. Establish a Donor Advised Fund (DAF)

It’s a strategy that isn’t implemented often enough, partly because a lot of people aren’t aware of it. A donor-advised fund allows you to make a large charitable donation that you can claim immediately as a tax deduction. The money is not given immediately, however. Instead, it’s put into an account, and then you can distribute it in small chunks over several years to nonprofits of your choice. An organization sponsors and manages the account, but you decide how and when the money is donated.

How could you benefit from a donor-advised fund? For example, suppose you own a stock with a huge cost base problem. You can donate it to the donor-advised fund, which allows you to avoid paying capital gains tax and making your donations.

2. Donate your required minimum distributions (RMDs)

If you have retirement savings in a tax-deferred account, such as a traditional IRA or 401(k), required minimum distributions (RMDs) kick in when you reach age 72. Essentially, the government requires you to withdraw a certain percentage each year. , so that he can collect the income taxes on this withdrawal.

This represents another opportunity to maximize charitable giving. Let’s say you don’t need that IRA money and plan to donate anyway. You can have your RMD go directly to charity through a Qualified Charitable Distribution (QCD). You can donate up to $100,000 tax-free. Not only is this a tax savings, but by avoiding the RMD, you keep your income lower for Medicare purposes, which helps you avoid a potential increase in your premiums.

3. Bequeath money to charity in your will

People often leave money to charity after they die, but even that can be done strategically. If you only leave a dollar amount to the charity, that money will come from a checking or savings account. Instead, it might be better to leave your IRA to the charity.

Why is that? Let’s say you also have children that you name in the will. I If they inherit money from a checking or savings account, they pay no tax on it. If they inherit an IRA, they will end up owing taxes. But the charity owes no tax anyway. So, leave the IRA charity and divide the rest of the money among your heirs.

4. Create a trust

Another way to make charitable donations is to set up a charitable trust, which has several advantages. Here are a few: A charitable trust offers a deduction on your income taxes. Additionally, you can gift an asset to the trust that has appreciated in value and is subject to capital gains tax. However, once the asset is owned by the charitable trust, no capital gains tax is payable.

5. Inspire the next generation — or two

If you have a philanthropic disposition, you can pass it on to your children and grandchildren. One way to do this is to give them a certain amount of money with the intention that they donate it to charity. Of course, they can choose the charity. It’s a great way to help them understand the concept of giving back and the satisfaction that comes with it.

These are just a few ways to approach charitable giving that allow you to do good and save on taxes, all rolled into one. Making sure you’re doing things the right way can get tricky. A finance professional can explain to you in more detail how these and other giving strategies work and help you decide which giving strategy would be best for you.

Ronnie Blair contributed to this article.

Financial Advisor, Semmax Financial Group

Matt Landon joined Semmax Financial Group as an Advisor in 2017. He is a Licensed Insurance Agent and has passed the Series 65 Credentials Examination. He graduated from the University of North Carolina Greensboro with a Bachelor of science in kinesiology. Matt is currently enrolled in the North Carolina State Online CFP® Certification Training Program and studying to earn the CERTIFIED FINANCIAL PLANNER™ designation.

The appearances in Kiplinger were obtained through a public relations program. The columnist received help from a public relations firm to prepare this article for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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