Charitable giving can be a powerful way to use your assets to make a positive influence on causes and organizations that align with your personal values and passions — especially when you make a sizable gift. 

But have you considered deeply how your philanthropy might be better integrated into your wealth management strategy? In fact, it can favorably impact:

• Your income taxes: You may receive income tax deductions — and the federal gift tax¹ doesn’t apply to charitable contributions.
• Your estate plan²: By reducing your taxable estate through donations, you might create a more substantial, sustainable legacy for your family.

Let’s explore how to harness the potential of a charitable giving plan to boost the benefits for yourself and the worthy causes you’d like to support.

Identify your philanthropic goals

At the heart of an effective charitable giving plan lies a clear understanding of your philanthropic goals.

Moving beyond broad categories, such as “supporting the environment” or “advancing medical research,” consider delving into specific areas that ignite your passion.

What personal values motivate you to want to give? Whether it’s promoting literacy among underserved communities or fostering the arts, defining your philanthropic niche can empower you to make a targeted, more profound impact.

By aligning your charitable endeavors with your values, you create a sense of purpose to fuel your giving objectives. Consider engaging your family in these discussions to uncover shared interests and amplify the impact of your efforts. Including your loved ones in your giving strategy can impart valuable lessons about social responsibility and spark innovative ideas that may shape your philanthropic path.

Find an organization that aligns with your goals

The sheer number of nonprofits and causes you could support can be overwhelming. Like regular businesses, not all organizations are created equally, either. Some have stronger reputations while others do a better job of delivering programs and services. That’s why taking the time to research and vet organizations is crucial.

Seek recommendations from friends and experts. Explore charitable guides online and through articles in the news. Use those resources to evaluate an organization’s transparency, financial health and effectiveness.

You may also wish to consider vetting the organization thoroughly through both the IRS³ and independent charity assessment organizations such as:

• candid.org⁴ (Formerly GuideStar)
• charitynavigator.org⁵

» Insight: Consider volunteering to better understand and align with a charity before you advance toward making a significant gift. Through your hands-on efforts, you may develop relationships and insights to shape your giving plan so that it has the strongest impact on the charity. Unsure where to begin with volunteering? Reach out to the nonprofit directly or explore options at volunteermatch.org⁶ and idealist.org.⁷

Take stock of your assets and understand what can be donated — and how

Simply writing a check or using a credit card to donate is a good thing — but larger gifts may have tax implications. Donating appreciated assets held for over a year — such as publicly traded stocks — may not only grant you tax deductions but also may enable you to contribute more to the charity of your choice.

Keep in mind that charitable giving isn’t limited to monetary donations — your donated assets can take various forms, each with unique benefits. You may wish to explore the benefits of donating money versus property, including vehicles, clothing, goods, real estate and appreciated securities.

Understanding the implications of your donated assets can increase the impact for both you and the nonprofit.

Consider the impact of your charitable contributions on both income and estate taxes

Carefully track your charitable donation receipts and periodically review smaller gifts, including cash and non-cash contributions, and report them annually.

Remember to consider any items received in exchange for your donation — often called premiums by nonprofit organizations or quid pro quo items⁸ by the IRS — such as concert tickets, meals at a banquet or recognition gifts, as you cannot deduct the premium item’s value.

» Insight: For non-cash contributions, the IRS provides guidance⁹ on determining the value of donated property. Remember, too, that December 31 is the deadline to claim a tax deduction in any calendar year.

Explore strategies for more robust charitable giving plans

When navigating the complex landscape of larger charitable gifts, it’s important to remember that if you name a charity as a beneficiary, your loved ones will not receive any direct benefit from those assets.

If you do decide to pursue more sophisticated giving strategies,¹⁰ it may be wise to talk with a wealth management professional, tax attorney, accountant or philanthropic advisor to potentially:

• Elevate your philanthropy by donating appreciated stocks or assets. Not only can you support causes close to your heart, but you also may enjoy tax benefits.
• Shape your legacy by naming a charity as a beneficiary of your life insurance policy. This strategic move ensures that your commitment to philanthropy persists, leaving a lasting imprint.
• Craft your charitable legacy by establishing a donor-advised fund. This dynamic investment vehicle not only empowers you to contribute to causes over time but can also provide income tax deductions as you advance causes in your name, your family or your business. When the donor-advised fund (DAF) is established, you may suggest how, when and where the money should be distributed. The DAF owns the funds, however, and has ultimate control over how, when and where the money is distributed.
• Invest in a charitable gift annuity. Making a substantial upfront donation, you then secure lifetime payouts on a fixed schedule. This choice might grant a partial charitable tax deduction and upon your passing, any remaining annuity funds continue to fuel the cause you champion. (As an irrevocable gift, however, it cannot be changed once made.)
• Create a lasting legacy by starting a private foundation. This avenue provides you with the opportunity to define the causes that matter most to you and steer resources toward them. There are possible legal and financial issues related to the creation and management of a private foundation. You should seek the advice of a tax or legal professional before establishing a private foundation.
• Establish a charitable lead or remainder trust. These innovative vehicles channel resources to specific charities, ensuring a sustained impact aligned with your values. These type of trusts require an irrevocable commitment and the assets that pass to the charity do not pass to your heirs.

» Insight: Own a business or serve in a high-profile role within one? You might be instrumental in connecting your company’s business objectives to an organization. Through these connections, you may be able to find more money and volunteers to support your favorite cause. Your philanthropic efforts may not only benefit your selected nonprofit but also favorably impact your business or employer brand.

The takeaway

Charitable giving can be a powerful mechanism for personal growth, community transformation and enduring legacy. Although a contribution through a nonprofit’s annual campaign or during the holiday season is great, you may be able to have a more significant impact on an organization with careful research and planning.

If you’re interested in integrating your charitable goals into your financial strategy, remember that RBFCU Wealth Management, The Garner Davis Group is dedicated to helping you develop a strategy that reflects your vision and values.