Charitable Giving
As fee-only advisors, we want you to accomplish your goals and live a fulfilling life. For a lot of people that includes charitable gifting. Not only is giving charitably a fantastic thing to do – it can also be an incredibly effective financial planning tool.
Qualified Charitable Distributions (QCDs):
If you are the age that you must take Required Minimum Distributions (RMDs) from your IRA – taking a QCD can lower the amount of your RMD.
- How QCD's work:
- When you reach a certain age you must take out a specified amount from your IRA each year as required by the IRS – called an RMD.
- QCD: If you give to your church, or other charities, you can choose for a portion (or all) of your RMD to go to the charity (or a qualified 501(c)(3)) – this means that the amount going to the charity from your IRA is not taxable income and it reduces the amount you have to take our for your RMD.
- Mistakes People Make: A lot of people who are subject to an RMD give to their church or a charity on a regular basis from their bank account. It is far more tax advantageous to give these funds from your IRA – as this will lower your taxable income & tax liability by doing so.
Donor-Advised Funds & Charitable Bunching
- A donor-advised fund (DAF) is a charitable giving account that allows individuals and families to make tax-deductible contributions, invest those funds for potential growth, and distribute grants to charities over time. DAFs are offered by organizations such as Vanguard, Fidelity, and Charles Schwab, and often have relatively low minimum funding requirements.
- One of the primary benefits of a donor-advised fund is the ability to receive an immediate tax deduction in the year a contribution is made, even if the funds are distributed to charities gradually over future years. Donors can contribute cash, mutual funds, or appreciated investments such as stocks, potentially avoiding capital gains taxes while supporting charitable causes.
- Bunching: A donor-advised fund can also be an effective tool for a strategy known as "bunching." Rather than making charitable gifts evenly each year, a donor may combine several years' worth of planned donations into a single tax year. By doing so, they may be able to exceed the standard deduction and receive a larger tax benefit from itemizing deductions. The funds can then be distributed from the donor-advised fund to charities over time, allowing organizations to receive support on a regular schedule while the donor receives the tax deduction upfront.
Gifting Appreciated Stock to Charity
- For investors with taxable brokerage accounts, gifting appreciated stock can be one of the most tax-efficient charitable giving strategies available. If you own stocks, ETFs, or mutual funds that have increased significantly in value, selling those investments may trigger capital gains taxes. By donating appreciated securities directly to a qualified charity, you can often avoid paying capital gains tax on the appreciation while still supporting the causes that matter most to you.
- In many cases, gifting appreciated stock may be more beneficial than donating cash. The charity receives the full value of the donated investment, and you may be eligible for a charitable income tax deduction based on the fair market value of the securities, subject to IRS limitations. This can help maximize the impact of your charitable contribution while reducing your overall tax burden.
- An additional planning opportunity exists if you were already planning to make a cash donation. Rather than giving cash directly to the charity, you may consider donating appreciated securities and then using the cash you would have donated to repurchase the same investment in your brokerage account. This strategy allows you to remain invested while increasing your cost basis, potentially reducing future capital gains taxes if the investment is sold later. For charitably inclined investors, gifting appreciated stock can be an effective way to support charitable organizations while improving overall tax efficiency.
501(c)(3) Examples: If you donate to a church, charity, or organization that is a registered 501(c)(3) you may be eligible for a tax deduction. Here are a few examples of some incredible local charities in the Triangle that are 501(c)(3)’s:
Good & Glory – This is a registered 501(c)(3)) who partners with families facing life-altering pediatric diagnoses. Through a beautifully designed T-shirt representing the family’s unique story, they build community and help alleviate financial burdens for these families.
Duke Cancer Institute: Duke Cancer Institute is one of the premier cancer centers in the US. They bring together some of the best scientific minds to lead the fight against cancer.
*The organizations listed here are provided as educational resources only. We do not receive compensation from these organizations, occupy any board or management positions for these organizations and this inclusion does not constitute an endorsement."