The Different Types of Philanthropic Giving
November 08, 2022
As we prepare for the holiday season, you may be thinking about ways to give back. Philanthropic giving is not only a great way to support your local community and causes important to you, but also may be an excellent way to gain tax benefits.
While it’s never a bad time to focus on philanthropic efforts, the end of the year is a popular time to do so — and having a plan mapped out before you act can help you make the most of what you give.
|Charitable organizations may be reaching out to you in advance of Giving Tuesday, which falls on November 29th this year. Now is the time to think about those you’d like to support and the best way for you to give.|
Where should you donate?
Many of our clients give to organizations close to their hearts, such as social causes, educational or religious institutions, or arts and cultural organizations. Before you select where you’re going to donate, do your due diligence by researching the non-profits you’re considering. For example, you can review third-party sites, such as guidestar.org, charitynavigator.org or charitywatch.org, which provide information on financial health and best practices. This way, you’ll have peace of mind that the money you contribute will make a difference.
What are your options for giving?
Depending upon your goals and financial situation, your financial plan might include giving in several ways. Here are some options to consider:
- Cash donations – Writing a check directly to an individual or group is the simplest way to give. However, it may not provide the greatest tax advantages because this strategy does not provide added benefits, such as potentially reducing your taxable capital gains.
- Appreciated stock or real estate - Although you can sell assets and then donate the proceeds, giving assets directly may allow you to avoid the capital gains taxes you would incur if you sold those items first. And you can still get a deduction for the full fair market value of the gift (with some exceptions).
- Tax-exempt Foundation - you also can gift through your own tax-exempt foundation, which allows you to deduct up to 30% - 60% of your adjusted gross income each year, tax-free; carry any excess funding forward up to 5 years; and minimize taxes on your estate. (However, keep in mind that deposits are irrevocable).
- Donor-advised funds (DAF) - A DAF is an account you set up for charitable giving that may provide extra tax advantages. For example, you can front-load your charitable contributions of cash, securities, or other assets (including cryptocurrency), and get an immediate tax benefit. And even though you get the charitable deduction up front, you don’t have to make your charitable donations all at once. Instead, you can make distributions over time (within the limits set by the DAF provider), allowing the assets to potentially grow tax-free to maximize what you give.
- Private charitable foundation – A private foundation is set up by a family, individual, or corporation. It is privately funded and controlled, giving you ultimate control over its mission. Generally, a private foundation must distribute a specific amount each year and has significant regulatory requirements.
- Charitable trusts and supporting organizations – For certain individuals – particularly those that wish to benefit specific organizations and want either a stream of income for the donor or to ensure their philanthropy goes on in perpetuity – a less common structure, like charitable trusts and supporting organizations, can be valuable.
- Volunteer your time – Many non-profit organizations rely on the help and experience of volunteers to enable them to fulfill their mission. You may have a skill set or background they require, such as marketing, legal, or financial expertise. And giving your time alongside your family members is a great way to raise philanthropic children.
Before making any decisions…
Review your goals with your Washington Trust Wealth Advisor to determine the best charitable giving strategy for you. Your advisor will answer any questions you may have, including how philanthropic giving fits within your wealth plan.
Not yet working with a Washington Trust Wealth Advisor? Please contact us to learn more!
Connect with a wealth advisor
No matter where you are in life, we can help. Get started with one of our experts today. Contact us at 800-582-1076 or submit an online form.
This material is presented for informational purposes, and nothing herein constitutes legal, accounting, or tax advice. Please consult with an attorney or tax professional regarding your specific financial, legal or tax situation.
The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.