If the arrival of the holiday season has you thinking about charitable giving, you’re not alone. It’s been estimated that over 30% of annual donations occur between Thanksgiving and the new year, with the majority of those gifts coming in the last few days of the year.
That’s a small window for many not-for-profits and charitable organizations looking to make their budget, and it explains why you’re likely experiencing a deluge of annual reports and fundraising asks from the organizations in your area.
If part of building your life well-lived is about giving thanks by giving back—you may be thinking about volunteering or committing financial resources to the institutions, the organizations and the people improving outcomes for the community. Unfortunately, with so many deserving causes and (for most of us) a finite pool of donatable dollars, it’s important that you approach your giving with a plan that maximizes your impact.
We work with our clients to build charitable giving strategies that do good while also preserving wealth through thoughtful tax and investment management. That may involve collaboration with your attorneys and accountants to build a holistic plan, or it can be as simple as helping you map out your priorities and offering advice to make your philanthropy go further.
If you haven’t built a charitable giving plan or structured your philanthropic efforts before, all the talk of trusts and tax implications can make the whole endeavor a little imposing. We’re here to simplify the process and demystify the jargon so you can focus on the part that’s actually fulfilling: giving to those who need it most.
What types of charitable gifting strategies make the most sense for your financial situation? Here’s a quick primer so you can feel confident and energized as you start your journey.
3 Charitable Giving Strategies for Maximizing Your Impact
1. Donor-Advised Funds
Donor-advised funds (DAFs) have become popular planning tools for charitable giving in recent years, and for good reason. DAFs offer flexibility and simplicity, allowing you to fund multiple causes with minimum administrative stress.
DAFs are held and managed by a sponsoring public charity or foundation, such as the Greater Cedar Rapids Community Foundation or the Community Foundation of Johnson County here in the Corridor, or even larger institutions, such as Charles Schwab or Fidelity.
When establishing a donor-advised fund with the organization of your choice, be sure to be aware of minimum balance requirements for initial funding. For example, the Greater Cedar Rapids Community Foundation requires a minimum of a $10,000 investment to establish a DAF, whereas Charles Schwab and Fidelity have no minimum.
Those funds are able to be reinvested to create a sustainable endowment, and you can recommend grants to a charitable organization at any time, allowing your giving to adapt to the changing needs of the community.
We like DAFs for how they create a regenerative source of support for the community, but they also offer several benefits to the donor. DAFs can generally accept a wide range of non-cash assets, and your donation is tax deductible in the year your gift is given—even if the funds are distributed over several years. Donor-advised funds can also provide a level of anonymity for donors who prefer to keep their philanthropy private.
2. “Bunching” Your Charitable Gifts
The Tax Cuts and Jobs Act (TCJA) of 2017 limited the tax benefits of regular, annual giving by nearly doubling the standard deduction, and for many, eliminated the charitable donation deduction from their federal income tax return. However, if you have plans to support certain organizations for years into the future, a “bunching” strategy can help you maximize your giving and lower your tax bill.
By bunching gifts intended to be spread out over a number of years into one tax year, you can accumulate enough itemized deductions to exceed the standard deduction limit ($13,850 for single filers, $27,700 for joint filers in 2023, indexed for inflation in future years), reducing your total tax liability over that same period—even if you go back to using the standard deduction in future years.
This strategy is especially useful for individuals aged 70 ½ or older, who can direct qualified funds from their retirement accounts directly to charitable organizations, up to $100,000 a year (for 2023, indexed for inflation in future years). These Qualified Charitable Distributions (QCDs) are excluded from your income and may help reduce potential future Required Minimum Distributions (RMDs), while also giving deserving organizations a significant influx of funding.
Given that tax laws tend to change over time, bunched giving allows for additional flexibility, helping you adapt to evolving tax environments. If tax laws become more or less favorable to charitable deductions in the future, you can adjust your giving strategies accordingly. We can help with that.
3. Consider Donating Real Assets
While many of us think “cash” when talking about charitable giving, non-cash gifts such as appreciated securities, real estate or art can generate sizable tax benefits for your financial life.
The biggest advantage of donating appreciated assets is the potential for avoiding capital gains tax. When you donate an asset that has appreciated in value that you’ve owned for more than a year, you can generally deduct the fair market value of the asset without having to pay capital gains tax on the appreciation.
Non-cash gifts can be particularly useful when individuals wish to make complex donations, such as contributing a portion of a business, art collection, or other valuable assets. This type of giving requires careful planning and coordination, but that’s exactly what we’re here for.
A Closing Thought on Holiday Giving
We recognize there’s an element of emotion and serendipity that comes with holiday giving, so the last thing we want is for you to feel constrained by your charitable giving plan. Stuff that kettle when you see the bellringers or throw a few extra dollars in the offering plate when your heart moves you—just remember that your bigger donations should be thoughtfully planned and rigorously examined, just like the rest of your financial life.
When you’re new to focused charitable giving or looking for a team to help you build a sustainable plan, we can help. Give us a call today for a free consultation, and let’s grow together.
The commentary on this blog reflects the personal opinions, viewpoints, and analyses of Cedar Point Capital Partners (CPCP) employees providing such comments and should not be regarded as a description of advisory services provided by CPCP or performance returns of any CPCP client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this blog constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Cedar Point Capital Partners manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.