Meeting your charitable giving goals
Being strategic in choosing which assets to give and how to structure your giving goals can be beneficial for both you and the charity.
How we can help
For more information on the tax implications of charitable giving, reach out to your Edward Jones advisor for the full report, "Charitable giving: structuring your strategy to meet your goals." Your financial advisor can help you think through charitable giving goals, potential tax implications, and tradeoffs to create a financial strategy for your unique needs. And if you want to read more about specific financial vehicles for charitable giving, you can read our report on strategies to fit your unique charitable giving needs.
Selecting which assets to give during your lifetime
Giving cash directly to an organization is the most common and easiest way to give to charity. When giving cash, you're generally allowed to deduct the full amount of the gift (up to 60% of your adjusted gross income (AGI) to public charities, and 30% to private foundations).
Giving long-term, appreciated securities – such as stock – has a dual tax-benefit. First, you are entitled to an income-tax deduction for the full market value of the securities on the date of transfer (up to 30% of your AGI for gifts to public charities, or 20% to private foundations). Second, neither you, nor the receiving charity, recognizes and pays any capital gains on the transfer. This means the charity receives more money and you receive a higher income tax deduction.
As outlined in "Charitable giving and tax deductions," traditional retirement accounts, such as 401(k)s or IRAs, generally require account owners to begin taking taxable distributions at age 73. The amount that must be taken each year is based on your age and the prior year's ending account value.
Donating assets directly from a traditional or Roth IRA to a qualified charitable organization is called a qualified charitable distribution (QCD), which you're eligible to make once you're 70 ½ or older. QCDs can satisfy your required minimum distribution (RMD) and achieve a lower AGI (and thus lower your tax bracket).
Be careful: Making deductible contributions to your IRA during or after the year you reach age 70½ will result in a dollar-for-dollar reduction in the tax deductibility of future QCDs.
You may also be able to donate real estate, business interests, tangible personal property such as collectibles, or ordinary-income property such as inventory. The rules and considerations around donating these types of assets can be more complex and may require an independent appraisal and specialized tax services.
Selecting which assets to not give
You may not want to donate securities held for one year or less. If a security has been held for less than a year, then the amount of the deduction is generally limited to the cost basis of the security rather than its current value.
In addition, you may not want to donate securities that have decreased in value. These securities can be sold and the taxable loss may then be used to offset other taxable gains in your portfolio.
Giving from your employer-sponsored retirement account does not qualify for QCDs. This means a distribution will result in taxable income, reducing the amount you give to charity. QCDs cannot be made from employer-sponsored retirement plans, including SEP and SIMPLE IRAs.
It may be less beneficial to give from Roth IRAs. These accounts do not have required distributions during the owner's lifetime, and distributions from the account are already generally tax free. All else being equal, it may be preferrable to give assets from a traditional IRA.
Estate Planning and charitable giving
Giving to charity at the time of your passing (also referred to as testamentary giving) allows you to maintain control of the assets during your life, should you need them. Your estate is eligible for an unlimited charitable tax deduction, so giving can reduce your heirs' estate tax liability.
Using your will
A will can provide the opportunity to give instructions for how you want your assets to be distributed after you pass, including making an outright, testamentary gift to a charity. Because estates are eligible for unlimited charitable tax deductions, this can be a good way to help minimize potential estate taxes. Wills can be combined with other, more complex giving methods (such as donor-advised funds (DAFs), charitable trusts, and foundations) to offer additional benefits, while preserving the charitable deduction for your estate.
Naming a non-profit as a beneficiary
Just as you can name a person as your beneficiary on certain accounts, like insurance policies, you can also name a non-profit as your beneficiary. Similarly, you can name a charity for transfer-on-death (TOD) or payable-on-death (POD) designations.
Donor-advised fund (DAF)
The Edward Jones Charitable Gift Fund, a donor-advised fund, provides the potential for an immediate tax deduction for your irrevocable donation to the fund. In addition, you'll have the opportunity to advise on how the money is invested, when the funds are granted, and which charities receive grants. Since the money is invested, you have the potential to grow your charitable impact over time. The higher level of ongoing control allows several benefits, such as:
- The ability to evaluate charities over time
- Share your giving values with loved ones
- Leave a legacy of charitable giving
By aggregating multiple years' worth of planned charitable giving into a single DAF donation, you may be able to realize greater tax benefits while still meeting your annual giving goals. You can also name a successor advisor to continue in your spirit of giving and allow your family to make an impact in your or their name.
Up next in charitable giving: Strategies to meet your unique needs
Zach Gildehaus, Client Needs Research
Zach Gildehaus joined Edward Jones in 2013. He is currently a senior analyst on the Client Needs Research (CNR) team where he focuses his research efforts on charitable giving and financial strategies for business owners.
Prior to CNR, he was a senior analyst in Investment Manager Research (IMR), where he spent more than six years. During his time in IMR, he covered both active and passive investment strategies across many asset classes.
Important information:
This content should not be depended upon for other than broadly informational purposes. Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.
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