A win-win: Maximize your tax savings & make your giving go further
Charitable donations not only contribute to causes you and your clients care about; they are a smart play to boost your wealth. You might discover that you can boost your giving by 20 percent or more—without denting your bank balance.
In this blog post, we’ll explore the art of charitable giving and simple considerations to maximize your tax savings and personal well-being. We will explore:
- How to find the RIGHT causes to Bring Meaning and Joy to Financial Plans
- Tips to maximize benefits beyond conventional giving tools
- Donor-advised funds, ‘bunching’ charitable donations, contributing appreciated assets and more!
Go beyond profit: bring meaning and joy to your financial plans
When it comes to finding joy in the pursuit of wealth, the meaning of this journey extends far beyond personal gain to the deep satisfaction that arises from giving back.
At PlanScout, giving back is core to both our values and strategy. When working with your clients, we recommend taking time to understand their core objectives. Discussing causes that matter to them will not only deepen the impact of your strategy but also deepen your client relationship.
Tip: Identify causes that resonate with your client’s values and financial objectives: begin by doing some basic research using sites like Candid or Charity Navigator, as well as reading materials on the nonprofits’ websites. This will help you create a giving strategy that aligns seamlessly with your client’s overall financial plan.
Charitable donations are more than just acts of generosity; they are strategic moves to optimize your client’s financial situation. By aligning your philanthropic endeavors with your financial goals, you create a sense of purpose that goes beyond wealth accumulation.
Have you maximized your tax savings this year?
Charitable giving can be a powerful tool for minimizing tax liability. By strategically structuring donations, your clients may be eligible for tax deductions, creating a win-win scenario where they both support causes they care about and optimize their financial position.
By using the proper tax planning strategies, charitable contributions can reduce three kinds of federal taxes: income, capital gains and estate taxes:
Income tax strategies
Contributions to 501(c)(3) public charities are eligible for an itemized deduction from income, effectively reducing your taxable income and potentially lowering your overall tax liability.
Many donors are unaware of the various strategies available to maximize this seemingly straightforward deduction.
Tip: Donor-Advised Funds offer a flexible and efficient way to manage charitable giving. By contributing to a DAF, donors can receive an immediate tax deduction, with additional opportunities for tax benefits through minimized capital gains as well as tax-free growth of the assets in the DAF.
For example, your client can consolidate your charitable contributions in a single tax year using a donor-advised fund, allowing you to amplify the amount you donate during a high-income year. The funds can then be distributed to support charities over time. Alternatively, they can optimize your benefits by making a combined gift of appreciated assets and cash.
*Note: While DAFs are one of the most flexible and cost-effective strategic giving tools, there are other vehicles that achieve similar outcomes and are often leveraged depending on a donor’s unique goals. These include private foundations, charitable trusts and charitable gift annuities.
Capital gains tax strategies
Did you know your client can decrease capital gains tax exposure by contributing long-term appreciated assets? Beyond deducting the fair market value of donations from income tax, they can also mitigate capital gains tax, potentially reducing it by up to 20 percent.
Assets susceptible to capital gains taxes encompass various investments such as stocks, mutual funds, or tangible assets like real estate. These assets can be either publicly traded or non-publicly traded. For instance, some individuals choose to donate shares of a private business before its sale, significantly amplifying their charitable influence.
Estate tax strategies:
Charitable donations can form an integral part of your legacy planning. By establishing a charitable bequest or endowment, your clients can leave a lasting impact on causes dear to their heart, creating a legacy that extends beyond their lifetime.
Strategically structured gifts and donations can effectively reduce the assets considered in an estate, potentially minimizing taxable amounts. Notably, an estate plan may benefit from an unlimited charitable deduction if it includes gifts to charitable organizations.
Pro Tip: Estate planning involving charitable tax strategies can be intricate, often warranting professional advice. Common approaches encompass the use of charitable trusts and meticulous asset selection for distribution among various beneficiaries—both charitable and otherwise. For instance, directing an IRA to a charity and allocating appreciated securities to individuals could enhance your heirs’ inheritances due to differences in how these assets are taxed. Collaborate with PlanScout to weave charitable giving into your legacy planning, ensuring your values endure for generations.
*Note: The federal estate tax pertains to the taxation of property transfers upon one’s death. In 2023, the estate and gift tax exemption stand at $12.92 million per individual, reducing the number of estates subject to this tax.
Alternatively, for those with substantial wealth and vision, creating a charitable foundation can be a strategic move. This allows you to have a more significant impact on causes that matter to you, while also providing a structured approach to giving that aligns with your long-term financial goals.
In Conclusion…
Charitable giving isn’t just a generous act; it’s a strategic move for your clients to enhance financial security while making a positive impact on the world. By working hand-in-hand with your clients, you can offer a vision and plan for creating TRUE wealth and meaning.
Raygar Khailany
CEO and Co-Founder
PlanScout
PlanScout: Your Partner for Personalized Financial Planning with a Friendly Touch!
We provide outsourced financial planning services for licensed financial advisors, enabling them to accelerate their growth by delivering visually engaging and comprehensive financial plans within just two business days.
