Donate to causes you are passionate about
Here at Janiczek Wealth Management, we have many clients who generously gift sizable amounts to charities that have causes near and dear to their desire to help others in need. As such, we are regularly involved in helping clients give to charities in tax smart ways – from simple methods all the way to complex techniques such as Private Foundations and Charitable Remainder Trusts (CRTs).
There are many ways you can donate to causes you are passionate about. Not only are you giving back to a good cause, but you can gain a tax advantage while doing so. A charitable donation is when you give a gift to a qualified organization (technically, qualified under section 170(c) of the Internal Revenue Code (IRC). The gift can be in the form of cash, appreciated securities, real estate and more.
A charitable donation can reduce or even eliminate a tax liability. Charitable donations made may be a tax deduction depending on your individual situation. In order to take a deduction, you must itemize deductions and the total itemized deductions must equal more than the standard deduction in order to be tax beneficial to you. The standard deduction amount depends on your filing status so speak to us or your CPA to understand key thresholds related to your specific situation. In certain cases, we may advise you to double up on donations in one tax year and skip donations in alternate years.
While cash gifts to charities are a common form of charitable giving, the most favorable charitable giving approaches will involve assets you own that have an unrealized tax liability. In order for the appreciated security to qualify for the charitable deduction, it must be given directly to the charity (we can handle this transaction on your behalf via a simple form). Be aware, if you sell the highly appreciated security first and then donate the funds you have lost the advantage of avoiding a large capital gains tax liability.
Another way to make tax smart charitable giving, if you are over age 70 ½, is to donate funds directly from your IRA, This technique is known as a Qualified Charitable Distribution (QCD). It’s important to note that the donation from your qualified tax-deferred retirement account, such as an IRA, must be made directly to the charity. If the funds are distributed to you first and then given to the charity it will no longer qualify for this benefit. Furthermore, you need not itemize deductions to take advantage of this technique. Thus, you can also take advantage of the standard deduction. So, contact us and we can complete the proper paperwork to accommodate a QCD. You can donate up to $100,000 of your required minimum distribution annually, to a qualified charity of your choice.
Other forms of tax smart charitable giving involve trusts, donor advised funds and private foundations. Depending upon your goals and situation, some of these techniques may be very favorable.
As an example, one of our clients experienced an $80 million windfall from an incentive stock ownership plan as a C-level executive. This client was very charitably inclined and after some planning, decided to put $40 million (half of the windfall) in a Donor Advised fund and avoid well over $10 million in taxes on the highly appreciated securities. To this day, the client donates $2 million+ a year from the donor advised fund to causes near and dear to them.
They took the other $40 million and, after taxes, had approximately $27 million in a highly diversified stock/bond portfolio and a real estate portfolio, all managed by us, to support their stand of living (and other charitable giving). Simultaneously, an estate plan was set up to avoid estate taxation on the full estate and help other charities (and family members) in the process.
As you can see there are a number of ways to make tax smart charitable gifts that can help you save on your income and estate taxes. Work with us and your CPA to incorporate such tax smart charitable planning into your financial plan. It’s a wonderful way to pursue financial freedom, family giving, spiritual oriented tithing and higher purpose goals all at the same time.