Incorporating Giving Back into Your Year-End Financial Planning


Incorporating Giving Back into Your Year-End Financial Planning

If you’re incorporating giving back as part of your year-end financial planning, there are many ways you can do so.

You can make an impact while receiving tax benefits by giving as part of an approach to charitable giving. You may want to consider philanthropic giving. Which addresses the root cause of social issues and requires a more strategic, long-term strategy, versus donating which tends to be more occasional giving.

Philanthropic giving often includes inviting younger generations to participate to become part of a family’s legacy. Here are actions to guide you as you work towards having philanthropy as part of your financial planning:

1. Identify your values

Determine your reason for incorporating giving and what you want to change. Since philanthropy is giving over time, determine how long you want to give and if you want it as part of your family’s legacy for the next generation to manage.

2. Define your goals

Your financial professional can help you define your goals and implement a giving plan as part of your financial plan. Each year, evaluate how much you intend to give and when. Depending on your circumstances, you may include a giving schedule, such as quarterly or a one-time contribution each year. Other things to consider when defining your philanthropic goals include:

  • Your giving in retirement
  • Icorporating giving through your estate plan
  • Including giving as part of a business-exit strategy

3. Select your charities

To ensure a charity is legitimate, ask the charity for details about their mission and how they’ll use your donation. The charity should also provide proof that it’s a 501(c)(3) public charity or private foundation so that your contribution is tax-deductible. As a second fact check on the charity, visit the IRS Tax Exempt Organization Search list to ensure it is a reputable, tax-exempt charity.

4. Understand how to maximize giving

Financial and tax professionals can help you determine how to maximize the tax advantages of giving. As tax laws change, your financial plan and giving plan may need to revise so that you receive the tax benefits of your gift. Here are a few ways to maximize when incorporating giving:

  • Qualified Charitable Distributions (QCDs)- If you’re age 70 1/2 or older, you can use a QCD to donate directly from your IRA to the charity of your choice. This strategy allows you to deduct the amount transferred to the charity from your taxable income. You can use a QDC each year versus taking the distribution and paying taxes.
  • Bunch your donations- By making charitable contributions for several years at one time, the total of your itemized deductions may exceed the standard deduction and offer some tax benefits.
  • Itemize your contributions- Charitable contributions can reduce your tax bill if you choose to itemize when filing your taxes. Work with your tax professional to determine how to itemize your giving if the total of your deductions plus charitable gifts equals more than the standard allowable deduction.

5. Determine which strategies to use

There are strategies that you can use or establish to help you organize your giving within your financial plan, such as:

  • Donor-Advised Funds (DAF)- DAF allows you to donate cash or securities, which are non-refundable, to a nonprofit organization. You may claim a tax deduction for the year you contribute to the DAF rather than the year your contribution goes to the charity. Stay in touch with your financial professional, as proposed legislative changes may impact when donors can receive the tax deduction.
  • Charitable Trusts- A charitable trust allows you to donate assets to a chosen tax-exempt organization to help you minimize taxes. Consult your financial and legal professionals to help you understand how trusts work and if you intend to include giving securities as part of your giving plan.
  • Private Foundations- A private foundation (PF) is a nonprofit charitable entity created by an individual or a business. An initial donation, known as an endowment, is used to generate income to make grants to charities per the foundation’s charitable purpose. Consult with your financial, legal, and tax professionals to determine if a PF is appropriate for your situation.

6. Consider giving other assets

Also there are other assets you can give as part of your financial plan that are not associated with securities:

  • Real Estate- If you have a property you no longer need, you can donate it to charity.
  • Cash- With a cash gift, you may receive a tax deduction equal to the amount of money you donated minus the value of any products or services you received.
  • Life insurance- You can name a charity as the beneficiary on your life insurance contract or choose to donate the cash value accumulation each year.
  • Art and collectibles- Gifted art and collectibles can be auctioned to raise money at charity events. To use either as part of your giving, have a certified appraisal completed with reporting.  You can submit the appraisal information and the donation documentation at tax time, indicating the value of your donation. Consult your tax professional regarding how to value and report these specific assets.

A benefit of incorporating giving in your financial plan is that it helps to ensure that your goals are listed. In addition a plan implements appropriate strategies, and progress towards your goals is monitored. Contact your financial professional to start your on-going year-end giving plan today.


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