10 Ways to Maximize Your Charitable Giving: In this video and in the article below, Alan Gassman, senior partner at Gassman, Crotty & Denicolo and co-author of “The Advisor’s Guide To Charitable Giving, Organizations & Creative Structuring” provides some of the most important strategies and vehicles to consider when planning with respect to charitable giving and reviews 10 Ways to Maximize Your Charitable Giving.
Article: 10 Ways to Maximize Your Charitable Giving
By Alan Gassman
Want to make the most of your charitable giving? Here are 10 strategies to help you maximize your impact and save on taxes.
Are you confused about how to make the most of your charitable giving this year? The following checklist of 10 Ways to Maximize Your Charitable Giving from Alan Gassman, senior partner at Gassman, Crotty & Denicolo and co-author of “The Advisor’s Guide To Charitable Giving, Organizations & Creative Structuring” provides some of the most important strategies and vehicles to consider when planning with respect to charitable giving:
1. Transfer up to $100,000 per year directly from an IRA to a public charity or a family operating foundation if the IRA owner is over 70½ years old. This counts toward any minimum distribution requirements.
2. Make a charity or charitable remainder trust the “pay on death beneficiary” or contingent beneficiary of your IRA or pension account owner to eliminate or defer income tax on distributions after death.
3. Give appreciated capital assets, like stock or real estate, to a public charity or private operating foundation to obtain an income tax deduction based upon the fair market value of what is transferred. This will also work for publicly traded stocks and mutual funds that are transferred to a private foundation.
An amount equal to up to 30% of adjusted gross income can be deducted each year. This is 20% of adjusted gross income if the donation is to a private non-operating foundation, but the donation must be of marketable securities, unless the taxpayer elects to deduct the income tax basis instead of the fair market value of the appreciated marketable securities. Additional amounts can be given in cash to reach up to 50% of adjusted gross income if appreciated capital gains assets are given. Alternatively, cash-only gifts to public charities and private operating foundations can be deducted for up to 60% of adjusted gross income.
4. Bunch deductions. In order for individual contributions to exceed the standard deduction, make charitable donations every second, third, or fourth year. For 2023, each individual taxpayer filing a return has a standard deduction of $13,850 for a single person and $27,700 for a married couple filing jointly. The annual property tax deduction cannot exceed $10,000. Medical expenses only count to the extent exceeding 7.5% of adjusted gross income. Interest deductibility is subject to various limitation rules.
A taxpayer who would like to donate $10,000 per year to charity could donate $50,000 to a donor-advised fund, community foundation, or a private operating or non-operating foundation to receive a tax deduction for amounts exceeding the standard deduction and then use the gifted entity to make annual charitable gifts.
5. Place income-producing assets into an irrevocable trust. For taxpayers who already use the full 50% or 60% of adjusted-gross-income deduction and/or taxpayers who wish to avoid the 3.8% Medicare tax, consider placing income-producing assets into an irrevocable trust that can pay some or all of its income directly to charity so that the income will not be taxable.
6. Pay for advertising and become “sponsors” of a charitable organization’s activities. Businesses may do this and receive an income tax deduction under IRC §162 for reasonable and necessary business expenses.
7. Transfer a remainder interest in a residence or farm. A home or farm owner may transfer a remainder interest and receive an income tax deduction for the present value of the remainder interest, while retraining the right to use the home or farm rent-free for the remainder for his or her lifetime. The life estate holder may thereafter decide to donate the life estate rights to charity in order to receive an additional income tax deduction. Some homeowners and some farmers will transfer the remainder interest in their home or farm to a charity to receive an immediate income tax deduction while retaining the absolute right to have continued use of the property for the lifetime of the donor.
8. Give appreciated artwork, jewelry, or other collectables to a charity that can use or display them, to obtain an income tax deduction based upon what a retail store would charge for such items (in used condition).
9. Contribute assets to a 501(c)(4). Taxpayers who wish to support political causes and have appreciated assets that may be sold should consider contributing those assets to an IRC § 501(c)(4) Social Welfare Organization to avoid paying income tax on the sale of appreciated assets and income subsequently derived thereon. 501(c)(4) organizations are subject to tax on unrelated business taxable income.
10. Other methods of obtaining recognition, a locked-in benefit for charity, and an income tax deduction for the donor who may retain the right to the “fruit from the tree” or more are available through the following:
- Pooled income fund: Transfer money or appreciated assets to charity in exchange for the right to participate in the income from a designated “pool” of assets based upon the charity’s adherence to IRS guidelines.
- Fund a charitable gift annuity by giving cash or appreciated assets to the charity in exchange for receiving a stream of payments, which may begin immediately or after a given term. The donor receives an income tax deduction and the charity may spend some of the money received for charitable purposes and use the rest to purchase a commercial annuity contract to ensure that the charity will have the exact amounts needed to satisfy the annuity payment obligation.
- Consider a tax-neutral dedicated charitable trust if a family wants to commit a certain amount of assets for charitable purposes without the complexity of a 501(c)(3) organization. A tax-neutral dedicated charitable trust can be for both charitable and non-charitable purposes to provide a family identity and to “try a family foundation on for size” before committing to 501(c)(3) status.
- A donor administered or controlled charitable remainder trust (CRT) can also give the donor deferral of income tax on the sale of appreciated assets transferred to the CRT before the appreciated assets are sold, in addition to annual payments that may be made for up to 20 years or for the lifetime or joint lifetime of one, two, or three individuals. The donor receives an income tax deduction.
- As an alternative to a CRT, a donor may consider making a transfer to a pooled income fund that is operated by a charity in exchange for the right to receive income from the pooled income fund for the lifetime of the donor. Another alternative is to purchase a deferred gift annuity where the charity may invest some of the money that it receives in a commercial annuity contract to ensure that it can make the promised payments to the donor, while using excess funds for the charitable purposes of the organization. The general rule of the thumb is that one half of the amounts transferred are considered to be a donation and one half are in consideration for the annuity payment to be received back.
- A donor can fund a charitable lead annuity trust (CLAT) and receive an income tax deduction for putting a “tree” into the trust, while receiving back some fruit and possibly even a substantial portion of the “tree” after a term of years. Alternatively, the CLAT can be funded during the lifetime of a grantor to provide an income tax deduction and for significant value to be transferred to descendants of the grantor after one or more charities have received a stream of annual payments for a specified term of years.
- A zeroed-out testamentary CLAT can be used to completely avoid federal estate tax while being expected to provide a significant non-estate-taxable disposition for the descendants of the donor or others after a term of years and a number of annual payments to charity. A lifetime zeroed-out CLAT can provide the same result so that the donor can receive an income tax deduction upon funding and equivalent charitable and estate tax avoidance benefits.
- Family private foundation: an individual or family can form a 501(c)(3) company or trust and receive tax deduction for funding with appreciated marketable securities or cash. The foundation should transfer approximately 5% of its net worth each year to one or more public charities.
- Private operating foundation: Similar to a private foundation, the family or donor may transfer appreciated real estate or other assets besides marketable securities to deduct up to a 30% of adjusted gross income, plus cash up to 20% of adjusted gross income. Approximately 4.25% of the net value of the operating foundation assets should be spent on charitable activities and for charitable purposes at least 3 out of every 4 years.
Check out more tax planning tips in FinStream’s Tax Planning Center at the following link: https://www.finstream.tv/videos/tax-planning/