Three Tax-Smart Giving Strategies for a Greater Impact
Charitable giving is a powerful way to make a difference in your community. Understanding the best strategies to maximize your impact can make all the difference. Whether you're a retiree looking to lower taxable income, an investor holding appreciated stocks, or someone who wants to engage the entire family in philanthropy, these three giving strategies can help you achieve your goals. In partnership with Leah Bobbey, CAP®, CFRE at Greater Cincinnati Foundation and Beth Robeson at Green Umbrella, we’re breaking down these strategies.
1. Gift Appreciated Stock
Investors often hold stocks that have significantly appreciated in value. Did you know you can donate those stocks directly to a nonprofit, avoiding capital gains tax and maximizing your gift?
Here’s how it works: Imagine you bought a stock for $100, and it’s now worth $1,000. Instead of selling the stock and reporting $900 in capital gains (which is taxable), you can donate the stock directly to a nonprofit like Green Umbrella. This way:
You avoid paying capital gains tax.
The organization receives the full $1,000 value of the stock.
You receive a tax deduction for the full fair market value of the stock.
It’s a win-win situation! You reduce your taxable income while making a larger impact on the causes you care about.
2. Make a Qualified Charitable Distribution
For retirees, giving directly from an IRA through a Qualified Charitable Distribution (QCD) is a tax-savvy strategy. This option is available for individuals aged 70½ and older.
Here’s why it’s beneficial:
A QCD allows you to transfer funds directly from your IRA to a charity without counting the distribution as taxable income.
For example, if your required minimum distribution (RMD) is $30,000 and you direct $5,000 to Green Umbrella, only $25,000 is reported as income on your tax return.
This strategy is especially valuable for those who don’t itemize deductions, as it allows you to lower your taxable income without relying on the itemized deduction threshold.
3. Create a Donor Advised Fund
A Donor Advised Fund (DAF) offers flexibility and control for your charitable giving. By contributing appreciated stock or cash to a DAF, you can make one large, tax-deductible donation and then distribute grants to nonprofits over time.
Why consider a DAF?
Simplified tax reporting: You receive a single acknowledgment letter for your initial donation.
Flexibility: Support multiple organizations at your own pace.
Tax-free growth: Funds in a DAF grow tax-free, increasing your giving capacity.
Family involvement: Use a DAF to involve children or grandchildren in philanthropic decision-making.
At the Greater Cincinnati Foundation, DAFs have become a popular option for individuals and families looking to streamline their giving and maximize their tax benefits.
Partnering for Good
Ready to take the next step in your charitable journey? Partner with your financial advisor and tax professional to implement these strategies!