5 Ways Charitable Giving Can Be Part of Your Financial Strategy


When professional baseball player Austin Barnes extended his Contract (opens in a new tab) with the Los Angeles Dodgers for another two years, he specifically included in the agreement a commitment on his part to make charitable donations.

It was a generous and financially savvy decision at the same time. He can put his money at the service of causes he believes in, while benefiting from tax advantages.

Most of us don’t have multi-million dollar professional sports contracts like Barnes, but there are ways to increase your own donations and, at the same time, lower your tax bill.

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After all, you probably have a dear cause—a church, animal rescue organization, homeless shelter, or other nonprofit—that you want to help. With charitable giving, you can specifically choose how your money is used, which is not the case with your tax money, which just goes into the big tax pot in Washington.

Think of it this way: If you were told you couldn’t keep $10,000 anyway, wouldn’t you rather have a say in exactly how it’s spent?

With that in mind, here are five ways to make charitable giving a key part of your financial plan:

1. Establish a Donor Advised Fund (DAF)

It’s a strategy that isn’t implemented often enough, partly because a lot of people aren’t aware of it. A fund guided by donors allows you to make a large charitable donation that you can claim immediately as a tax deduction. The money is not given immediately, however. Instead, it’s put into an account, and then you can distribute it in small chunks over several years to nonprofits of your choice. An organization sponsor and manage the accountbut you decide how and when the money is given.

How could you benefit from a donor-advised fund? For example, suppose you own a stock with a huge cost base problem. You can donate it to the donor-advised fund, which allows you to avoid paying capital gains tax and making your donations.

2. Donate your required minimum distributions (RMDs)

If you have retirement savings in a tax-deferred account, such as a traditional IRA or 401(k), Required Minimum Distributions (RMD) comes into play when you reach the age of 72. Essentially, the government requires you to withdraw a certain percentage each year, so they can collect taxes on that withdrawal.

This represents another opportunity to maximize charitable giving. Let’s say you don’t need that IRA money and plan to donate anyway. You can have your RMD go directly to charity through a qualified charitable distribution (QCD). You can donate up to $100,000 tax-free. Not only is it a tax saving, but by avoiding the RMD you keep your income lower for health insurance purposeshelping you avoid a potential increase in your premiums.

3. Bequeath money to charity in your will

People often leave money to charity after they die, but even that can be done strategically. If you only leave a dollar amount to the charity, that money will come from a checking or savings account. Instead, it might be better to leave your IRA to the charity.

Why is that? Let’s say you also have children that you name in the will. If they inherit the money from a checking or savings account, they pay no tax on it. If they inherit an IRA, they will end up owing taxes. But the charity owes no tax anyway. So, leave the IRA charitable and divide the other money among your heirs.

4. Create a trust

Another way to make charitable donations is to create a charitable trust, which has several advantages. Here are a few: A charitable trust offers a deduction on your income taxes. Additionally, you can gift an asset to the trust that has appreciated in value and is subject to capital gains tax. However, once the asset is owned by the charitable trust, no capital gains tax is payable.

5. Inspire the next generation — or two

If you have a philanthropic disposition, you can pass it on to your children and grandchildren. One way to do this is to give them a certain amount of money with the intention that they donate it to charity. Of course, they can choose the charity. It’s a great way to help them understand the concept of giving back and the satisfaction that comes with it.

These are just a few ways to approach charitable giving that allow you to do good and save on taxes, all rolled into one. Making sure you’re doing things right can get tricky. A finance professional can explain to you in more detail how these and other giving strategies work and help you decide which giving strategy would be best for you.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a public relations program. The columnist received help from a public relations firm to prepare this article for submission to Kiplinger.com. Kiplinger was not compensated in any way.

This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SECOND or with FINRA.

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Don F. Davis