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  • Mike Komara

How Charitable Giving Actually Saves You Money

Updated: Sep 14

Philanthropic giving is a powerful way to support the causes and issues that matter the most to you. Supporting charities and organizations that make a difference allows you to invest in a way that supports your local community or the broader world, providing much-needed resources for nonprofit organizations.

There’s another benefit to charitable giving. It can provide significant relief for you on your taxes.

Charitable giving can be a strategic part of a healthy financial plan. Here is a closer look at some of the ways that charitable giving can save you money.

Take Your Tax Deduction

If you itemize on your federal tax return, charitable deductions continue to qualify under the Tax Cuts and Jobs Act of 2017. Under the new law, there is no limit to the total itemized deductions you can claim, meaning you can get full credit for your charitable contributions.

The new tax laws also increase the limit on cash contributions to 60 percent of your adjusted gross income (AGI), up from 50 percent under previous tax rules.

Consider Non-Cash Assets

You could choose to make a charitable donation by selling non-cash assets like stocks and bonds and donating the proceeds. However, it may be more advantageous to donate the assets directly to the charity instead.

There are two major benefits to this approach, as long as you’ve held the assets for more than a year. The first is you’ll be able to claim a deduction for the full fair market value of the assets. The second is that neither you nor the charity will be taxed on any gains.

One other advantage. If you donate stock that has significantly appreciated, you can purchase more and reset the cost basis at a higher amount.

Manage Minimum Distributions

If you’re 72, the IRS requires you to make a minimum distribution from traditional retirement accounts, such as a 401(k), 403(b) or IRA. Taxes must be paid on these withdrawals.

If you find you do not need these required minimum distributions for living expenses, you can transfer up to $100,000 per year directly to an eligible charity without incurring any income tax. You can even contribute the $100,000 per year even if your required distribution is less than that amount.

Explore Donor Advised Funds

Donor Advised Funds (DAFs) are a charitable giving vehicle designed to reduce your tax burden. It’s simple. You open a DAF using cash or securities. The account grows tax-free and is dedicated to supporting charities you care about.

Any contributions to the fund are fully tax-deductible in the year you invest. Then, when you have a specific charitable gift, you want to make to an IRS-approved charity, you recommend to the fund that it grant the amount you wish.

Convert Your IRA

When you convert a traditional IRA to a Roth IRA, you avoid paying future taxes on the principal or growth. You will pay taxes on the IRA amount today but can then grow the ROTH IRA tax-free. If you plan to convert, you can also schedule a larger-than-normal contribution to a charity and use non-retirement assets to pay for the conversion.

Strategize with a Trusted Financial Advisor

Managing your money to allow for long-term growth and to support the important causes in your life is important. It often means working with a trusted financial advisor like Solas Wealth, which provides wealth management services for high-net-worth individuals. Learn more about how Solas Wealth can help protect and grow your assets, reduce taxes and manage charitable giving.