Maximize Your Charitable Impact With Tax-Advantaged Giving
April 17, 2023
 | By Erin Belby |
Tax Planning for Charitable Giving
With tax day this month, many people are considering ways to reduce their tax burden and meet their financial goals. By using tax-advantaged giving strategies, donors can maximize contributions to meet philanthropic goals while minimizing their tax bill. Here are the three most popular tax-advantaged methods of giving to charity.
Appreciated Assets: A Win-Win for Donors and Charities
1. Contributing Appreciated Assets
One tax-efficient way of giving to charity is by contributing appreciated assets, such as stocks or mutual funds. By donating these assets directly to a charitable organization, you can avoid capital gains taxes that would have been incurred if the assets were sold. This strategy benefits both the donor and the recipient, as the charity receives the full market value of the asset, while the donor receives a tax deduction for the fair market value of the asset at the time of the donation and avoids the tax on any capital gains.
La Crosse Community Foundation can walk you through the process whether you have a fund, are interested in starting a fund, or wish to make a passthrough gift to another charitable organization. Just contact us to get started.
Optimize Your Itemized Deductions with Bunching Contributions
2. Bunching Contributions
Bunching contributions is a timing strategy that involves making larger charitable donations in one year, followed by smaller or no donations in the subsequent year(s). This method allows taxpayers to itemize deductions in the years when they make larger donations, potentially maximizing their tax benefits. Bunching works when total itemized deductions exceed the standard deduction for that tax year, and the standard deduction is used in the lower contribution year(s).
Donor-Advised Funds: Flexibility in Charitable Giving
A donor-advised fund (DAF) can be a useful tool for bunching contributions. With a DAF, you can make a large donation in one year and take the associated tax deduction, while retaining the flexibility to distribute the funds to your chosen charities at a later date. This approach provides donors with the ability to carefully consider which organizations to support and when to distribute the funds.
(If you’re interested in this option, La Crosse Community Foundation requires no minimum balance to start a DAF and allows for the flexibility of funds to be endowed or unendowed.)
IRA Charitable Rollovers: Support Your Favorite Causes and Minimize Taxes
3. Qualified Charitable Distributions (QCDs) from IRAs
Another tax-advantaged method of charitable giving is through qualified charitable distributions (QCDs) from an Individual Retirement Account (IRA). QCDs are direct transfers of funds from an IRA to a qualified charity, which can be made by individuals who are at least 70½ years old. The distribution is excluded from the donor’s taxable income, and it can count towards their required minimum distribution (RMD) for the year.
QCDs can be especially advantageous for donors who would not benefit from itemizing deductions or those who want to reduce their adjusted gross income (AGI) for tax purposes.
Consult a Tax Advisor to Make the Most of Your Charitable Donations
There are several ways to give to charity that can maximize the impact of your donations while minimizing your tax liability. If you’d like to explore your options with La Crosse Community Foundation, give us a call. And remember to consult a tax advisor before making any financial decisions, as they can help you determine the best approach for your individual situation.
This article is for informational purposes only and is not intended as tax advice. Donors should consult a tax advisor before making any financial decisions.