It’s (Almost) the Season of Giving
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By: Michael Foster, CFA, CFP®
It’s a few days past Halloween, which means it’s basically Thanksgiving, which means it’s basically Christmas. At least that’s how things have looked when walking in Target, Lowe’s, or Costco in the past week. I personally like to start thinking about Christmas the week after Thanksgiving, but it’s hard to avoid when running errands or watching television. While I may like a slightly delayed start of the holiday season, I do appreciate the spirit of giving that comes with this time of year.
One way many of our clients start to get into the holiday spirit is through their gifting. This not only includes nicely wrapped presents but charitable gifts as well. Giving back can be one of the most rewarding aspects of financial success and is one of the most common goals our clients tend to have. Charitable gifting can create significant benefits for the giver outside of just the warm fuzzy feeling you get inside when doing something for others. From tax advantages to opportunities for teaching family values, incorporating charitable gifting into your financial plan can be a powerful way to make a meaningful impact.
Tax Benefits
Charitable gifts often start with the heart but can have an impact on the wallet as well when done strategically. One way they can be beneficial to your finances is through the associated tax benefits.
Contributions to qualified charitable organizations can reduce your taxable income if you itemize deductions on your tax return. By lowering taxable income, donors can keep more of their earnings while supporting causes they care about.
Gifting appreciated assets, like low cost basis stocks or funds, can allow donors to avoid capital gains taxes. Rather than selling the asset, paying capital gains, and then donating the proceeds, donors can gift the asset directly. The charity receives the full value, and the donor avoids a taxable gain.
For individuals over 70½ with a traditional IRA, donating up to $100,000 per year directly to charity through a Qualified Charitable Distribution, or QCD, is a powerful strategy. QCDs count toward required minimum distributions (RMDs) but aren’t included in taxable income. This approach is particularly beneficial for those who take the standard deduction and may not benefit from itemizing charitable deductions.
We also have clients that choose to give through a Donor Advised Fund, or DAF. Lots of 3 letter acronyms to remember! Think of a DAF as a charitable investment account. Donors contribute to the fund, receive an immediate tax deduction, and then have the flexibility to decide when and where the funds are distributed to charity. This allows for tax planning now while providing time for the assets to grow along with the ability to give to multiple charities over the life of the account. We often see clients that have one-time large tax years using these to lower taxes in these high income years.
These tax strategies can allow clients to contribute in ways that maximize their giving power while reducing the impact on their own finances.
Future & Legacy Gifting
For clients with larger estates, gifting can help reduce estate taxes, directing more wealth to their chosen causes instead of the government. Charitable giving can also ensure that a client’s values are reflected in their legacy, leaving a positive impact for years after their passing.
Many clients want to instill the value of giving to their children and grandchildren. Charitable gifting can be a family affair, teaching younger generations the importance of generosity and responsible financial stewardship. Going back to the DAFs discussed earlier, we often see clients getting kids and grandkids involved with these funds. We’ve had clients setup “boards” for their charitable gifts, with the grandkids making presentations on the charities they’d like to be able to support.
Aligning charitable giving with financial goals turns gifts into a reflection of a client’s values, while supporting their financial health and legacy.
Charitable giving is not just an act of kindness; it’s a powerful financial strategy that can provide both emotional and financial rewards. Thoughtful charitable planning allows clients to make a real difference while enjoying tax benefits, supporting family values, and ensuring their own financial wellbeing. If you’re interested in exploring how charitable giving might fit into your financial plan, consider creating a personalized strategy that makes the most of your generosity.
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Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors, Inc., a SEC-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.