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How Charitable Giving Can Work with Your Financial Planning Strategy

How-To Personal Finance

Giving to charity is an admirable way to help causes you support, especially during a time when so many are focused on holiday shopping. But particularly around this time of year, charitable giving can feel like just one more thing added to your to-do list. How can you turn giving from a tangled mess of good intentions, lost receipts and tax deduction headaches into a streamlined, easy process? The great news is: not only is charitable giving a nice thing to do; it can be beneficial to your overall tax strategy.

Here’s how.

Donor Advised Funds

Instead of giving to several individual organizations, donor-advised funds offer a way to pool charitable donations, grow them tax-free via investments, and distribute them to multiple charitable organizations and nonprofits over time.

Additional benefits of a donor-advised fund include:

  • The ability to make anonymous donations (if desired),
  • Immediate tax deduction in the year a contribution is made to the donor-advised fund,
  • Professional investment management,
  • Tax-efficient way to gift appreciated assets,
  • The ability to gift the fair market value of nontraditional assets like real estate, limited partnership interests, and more
  • The ability to leave a legacy by naming a successor to the donor-advised fund or making a bequest to your favorite organizations.

If you have the opportunity to make a large donation in one year, you may donate a lump sum to a donor advised fund and decide to distribute the gift over many years—or allow the funds to grow via investments, and distribute the gift to one or more charities at a later date. The tax deduction (if you itemize) would be in the year of the donation. This is also very useful for clients who are having high income years ( years in which they are earning more income at a higher bracket than most other years.)

Bunching Charitable Donations

As of 2018, the standard deduction is $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly and surviving spouses. This is higher than in previous years, so the barrier is higher to reduce taxable income by itemizing deductions. If you are used to charitable giving each year, you may now find that your deductions do not surpass the standard deduction level. You can plan your donations to gain the most tax benefit by “bunching” a larger amount in certain years.

Use Your RMD for Charity

If you are over age 70.5, you are required to take a Required Minimum Distribution from your IRA. Normally, you would be taxed on these distributions. However, if you are charitably inclined and do not need the RMD for living expenses, you may give up to $100,000 per year from your IRA required minimum distributions tax-free to a qualified 501(c)3 charity.

It's the functional equivalent of deducting the contributions from your taxable income (as long as you are itemizing deductions).

An important note: you can't double-dip by using retirement distributions to fund a donor-advised fund. You must also send this distribution directly to an entity – you may not send it to your bank account and then donate the equivalent funds at a later time.

Donate Time or Expertise

Charitable organizations appreciate donations, of course, but it’s usually not the only thing they need. Volunteering is a meaningful way to support your chosen charities and help them to achieve their mission in a hands-on way. If you have expertise in a certain area (such as marketing, fundraising, event planning, legal or accounting expertise), you may even be able to save the organization money, which could be allocated towards other areas that more directly serve their mission!

Note that the tax tail should never wag the investment dog. If you would not have donated to charity otherwise, then these strategies would not be useful to you. Always consult your CPA before making any tax moves.

Halpern Financial can help you to identify the best options for tax-advantaged giving. Please let us know if this is something you would like to pursue!

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IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Halpern Financial, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s




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