Charitable Strategy: Charitable Tax Deduction and Beyond

With holidays around the corner, what better time than now to consider giving to charity. It’s a popular way to do some good and maybe benefit from a charitable tax deduction. Charitable giving is not only an opportunity to make a difference in the world—it can be a savvy financial move when integrated into a broader plan. So, how can you make philanthropy work for both your heart and your financial health?

People tend to view charitable giving as a purely emotional decision. And yes, it’s deeply personal—often inspired by a cause close to someone’s heart. But giving to charity can also be strategic. Guest blogger, Nichole Coyle, CFP® CSLP®, details how you can support causes that matter to you while seeking a charitable tax deduction and other monetary savings that fits your broader financial goals.

Charitable Giving: Why it’s a Win-Win

Giving can feel good! Knowing your contributions impact causes, (like support for families with pediatric cancer) is rewarding. But it can feel even better when it’s built into your overall financial framework in a way that’s sustainable and tax efficient. A charitable donation doesn’t have to be a spontaneous decision; it can be a planned and purposeful part of your financial life.

Understanding Charitable Tax Deductions

One of the key benefits of charitable giving is the potential for charitable tax deductions. Contributions to qualified charitable organizations are tax-deductible, but there’s a bit of strategy involved. Depending on your situation, making the most of your charitable giving may require careful timing. For example, bunching several years’ worth of donations into one year could help you exceed the standard deduction and maximize your itemized deductions. This is known as “charitable lumping.”

Additionally, donating appreciated assets like stocks or mutual funds, rather than cash, can be a smart move. By donating long-term appreciated securities, you can avoid paying capital gains taxes while still getting a charitable tax deduction based on the fair market value of the asset. It’s a double win: your chosen charity gets more, and you can owe less in taxes.

Charitable Tax Deductions and Donor-Advised Funds

Another tool we can recommend to clients is a donor-advised fund (DAF). A DAF allows you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to your favorite charities over time. Essentially, it lets you “front-load” your giving and manage your philanthropy as you see fit. It’s also an excellent way to streamline your charitable donations, making it easier to track and manage your philanthropic efforts year after year.

For people with fluctuating incomes or those who experience a windfall in a given year, a DAF can be a particularly powerful tool. You get the immediate tax benefit while having the flexibility to spread your charitable giving over several years.

Legacy Planning and Charitable Trusts

Charitable giving doesn’t stop with annual donations. Many clients want to build philanthropy into their legacy planning, ensuring that their values are carried forward even after they’ve passed. In such cases, charitable trusts or bequests can be useful tools.

There are two common types of charitable trusts: charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). A CRT allows you to receive income for life (or for a set period) from assets placed in the trust, with the remainder going to charity upon your death. A CLT, on the other hand, provides income to a charity for a set period, after which the remainder goes to your heirs. Both types of trusts can be used to reduce estate taxes, while fulfilling your philanthropic goals.

Leaving a charitable bequest in your will is another simple but effective way to leave a lasting legacy. By designating a specific amount or percentage of your estate to go to a charity, you ensure that your philanthropic efforts continue beyond your lifetime.

Giving with Purpose – Charitable Tax Deductions Strategy

Charitable giving is more than just writing a check; it’s about creating a strategy that supports the causes you care about while ensuring that your financial house is in order. So, whether you’re passionate about education, the environment, or medical research, you can give in a way that fits your long-term plans. From a financial planner’s viewpoint, charitable giving isn’t just a benevolent gesture—it’s a financial strategy. By planning ahead and using the right tools, you can make the most of your donations, help the causes that matter most to you, and ensure you’re getting the charitable tax deductions that accompany charitable giving.

In short, the most successful charitable giving is both purposeful and practical. It’s about achieving a balance: doing good for others while doing good for your own financial well-being. After all, what’s better than making a difference and being smart about your money at the same time?

Start Strategizing Today

Philanthropy should be part of the bigger financial picture, not just an afterthought. When clients work with a financial planner, it’s important to incorporate their charitable goals into the overall plan. Whether it’s small annual donations or larger legacy gifts, giving can—and should—align with other financial objectives like retirement planning, tax efficiency, and wealth transfer.

If you have questions about charitable tax deductions, charitable giving planning, or anything related, you can schedule a consultation today.

Nichole Coyle, CFP®, CSLP®

Managing Partner, Financial Planner

2300 St. Clair Ave NE

Cleveland, OH 44114

216.621.4644 x1607 office

330.607.2213 cell

nichole@impactcfp.com

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Donor Advised Fund: Generally, a donor advised fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor’s representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.

Charitable Remainder Trusts:  Such trusts are used to develop a vehicle for donations to a favorite charity, which also allows for the reduction of income taxes through a charitable deduction and favorable tax treatment at the date of the gift by non-recognition of built-in capital gains.

The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.

Posted In: FFCCU News and Info, Guest Blog