Cashology by FNBO
Make Charitable Gifting Your New Years Resolution
New Year’s Resolutions – we all make them. To lose weight, exercise, eat right or to improve some other aspect of our lives, whether it’s to find a new relationship or to find a new job. The big one used to be to stop smoking but maybe that’s given way to a new one – to stop vaping? Another popular resolution is to improve our finances, and that’s what we’re going to talk about today – how we can make a New Year’s Resolution that we’ll love keeping and that will give us some financial advantages, too. We’re talking about charitable gifting.
Let’s say someone decides to make charitable gifting a new year’s resolution. What makes this resolution easier to keep than others?
- Most resolutions are about reducing negative behaviors.
- Eating too much, spending too much, watching too much Netflix.
- It’s tough when you go about changing or eliminating a negative behavior.
- But when you focus your resolution on increasing positive behaviors, such as community involvement or charitable gifting, your success rate will be higher.
- You’ll feel great about it and, with charitable gifting, there can be some significant financial advantages, too.
How can someone get started on this and know it’s right for them?
- Getting started is easy.
- Think about non-profits you like to give to.
- What causes are you passionate about?
- And think about how much you want to give and how often.
- And if you want to do it individually or have your family involved.
- Once you’ve thought about these basics, then a chat with your wealth management advisor can help you figure out a strategy for gifting.
There are a lot of different approaches to charitable gifting? What are some of the most common ways?
- Let’s talk about two of the simplest ways.
- One, of course, is giving cash gifts to organizations you support.
- You can make a resolution to make regular donations or a one-time donation.
- And if it’s a qualified charitable organization then you’re entitled to a tax deduction against your income taxes.
- And you can easily check to see if a charitable organization is qualified or not.
- There’s a website charitynavigator.org can tell you if your donation will be tax deductible or not.
- The second easiest way, after cash gifts, is to make qualified distributions from a retirement account directly to your charitable organization.
- If you have an IRA, for example, and are at least 70 and a half years old, you can contribute some or all of your IRA to charity.
- The upside – at 70 and a half you’re required to take distributions anyway and the donation will not be taxed.
- So you get to take your required distribution without realizing any tax burden.
What about Donor Advised Funds? Those are set up just for charitable purposes, right?
- That’s right.
- A Donor Advised Fund is an account that’s like an investment account but set up for charitable purposes.
- The big advantage here is there are no rules on how much you give or which organizations you give to, as long as it’s charitable.
- And your gifts earn you an immediate tax deduction.
- But it’s not for everyone.
- Your wealth management advisor can tell you more, but a DAF is best for someone if you have an event – such as selling a business – that creates a large tax obligation.
- If that’s the case, you can set up a DAF to receive the funds and distribute them to charity for a larger and immediate tax deduction.
- With a DAF you want to work with your wealth management advisor and really let your advisor manage the account under your direction.
And then that leads us to things like Charitable Trusts and Foundations and taking more of a family approach to charitable giving.
- Yes, both of those approaches take a longer term “family legacy” approach to charitable gifting.
- There are a lot of different types of charitable trusts and you need to carefully select a type, with your advisor’s help, that matches your goals.
- A charitable remainder trust is a very common type.
- With it, you set money aside in your lifetime and when you pass away the remaining money is gifted to one or more charitable organizations.
- The trust can create a stream of income for yourself during your lifetime, give you a partial tax deduction – based on the anticipated eventual gift – and reduce estate taxes when you pass away.
- A private foundation takes things a step further.
- On the upside, with a private foundation, there are expanded giving opportunities.
- You can make grants to individuals or non-charitable organizations.
- Giving becomes more strategic and more focused on a cause or ways to make an impact.
- But the time commitment, regulatory requirements and costs associated with a private foundation often steer people back to a Donor Advised Fund.
- Which can be created and managed much more easily.
And that sounds like a key for keeping a New Year’s Resolution.
- Without a doubt.
- That and picking a cause or charity that’s close to your heart.
- FNBO: https://www.fnbo.com/insights/wealth/make-charitable-giving-your-new-years-resolution/index.html
- How Stuff Works: https://money.howstuffworks.com/economics/volunteer/starting-a-charity/charitable-trust.htm
- National Charitable Endowment: https://nationalcharitable.org/donor-advised-funds-basics/