Charitable Giving: 4 Strategies for Maximizing Tax Savings

Each year, over 90% of Americans take the standard deduction¹ on their tax returns, often overlooking potential tax benefits from charitable giving. The 2017 tax reform made it challenging to benefit from charitable deductions, especially for married couples without a mortgage. However, with strategic planning, you can support the causes you care about and unlock tax savings. Here are four strategies to consider:

 1. “Lumping” Charitable Contributions with a Donor-Advised Fund (DAF)

Donor-Advised Funds allow you to “lump” donations in certain years, exceeding the standard deduction threshold. By contributing larger amounts to a DAF every 3-5 years, you can itemize deductions for that year and take the standard deduction in between. With a DAF, you gain flexibility—fund your account, then decide later when and how to distribute the funds to charities. Many DAFs also allow you to invest your contributions in stocks or bonds for potential growth before distribution.

 2. Gifting Appreciated Assets

Donating appreciated assets, like stocks, instead of cash to fund your DAF can provide two benefits: a charitable deduction and avoidance of capital gains tax on those assets. This strategy extends to various asset types, including real estate, private investment holdings, restricted stock, and cryptocurrency. For complex assets, early planning with a qualified advisor is key to determine eligibility and streamline the process. Working with a tax advisor can ensure you’re maximizing benefits and adhering to guidelines.

3. Using Qualified Charitable Distributions (QCDs)

If you’re age 70½ or older, consider Qualified Charitable Distributions (QCDs) from your IRA. QCDs enable tax-free donations that count toward your Required Minimum Distribution (RMD). For instance, if your RMD is $50,000 and you give $10,000 through a QCD, only $40,000 remains taxable. This “off the top” reduction can also lower taxable income on your state return.

A QCD can be especially valuable in managing your Adjusted Gross Income (AGI) for Medicare purposes. Lowering your AGI could help you avoid crossing the IRMAA (Income Related Monthly Adjustment Amount) threshold, which determines Medicare premiums deducted from Social Security.

4. Planned Giving and Charitable Trusts

If your estate is likely to be subject to the federal estate tax², planned giving through wills, trusts, or beneficiary designations can reduce the taxable estate. Charitable Remainder Trusts or Charitable Lead Trusts allow you to retain income or asset control while locking in tax advantages. These options provide impactful savings while securing your charitable legacy.

Maximize Your Giving Impact with Expert Guidance

While these strategies may be more complex than a straightforward donation, they offer meaningful tax benefits. At NPF Investment Advisors, we can work with your accountant and attorney to create a financial plan that optimizes your charitable giving. Reach out learn more.

¹ $29,200 for married filers and $14,600 for single filers, with additional amounts available for 65+ and blind taxpayers

² The current estate tax exemption is $13,610,000 per taxpayer. If your final estate value plus non-excluded lifetime giving is below that amount (or $27,220,000 per married couple), you would not likely be taxed. It is possible that we see this exemption amount decreased, or you could see the value of your estate get closer to that exemption level over your lifetime as assets grow. Work with your advisor to analyze your projected net worth to see if this is a risk for you.