As we enter 2025, many individuals are looking to make a positive impact through charitable giving while also optimizing their tax strategies. By employing smart giving techniques, you can maximize both your philanthropic impact and tax benefits. Here are some key strategies to consider:
Donate Appreciated Assets
One of the most effective tax-smart giving strategies is donating appreciated non-cash assets, such as stocks or bonds, instead of cash. This approach offers two significant advantages:
- You can eliminate the capital gains tax you would incur if you sold the asset.
- You can claim a charitable deduction for the fair market value of the donated asset.
This strategy can increase your charitable contribution by up to 20% while also boosting your tax deduction.
Bunch Charitable Contributions
If your itemized deductions are close to the standard deduction threshold, consider “bunching” your charitable contributions into a single tax year.
This strategy involves combining multiple years of planned donations into one year, allowing you to itemize deductions in that year and take the standard deduction in subsequent years. This approach can potentially produce larger overall deductions over time.
Utilize Donor-Advised Funds (DAFs)
A donor-advised fund can be an excellent tool for tax-efficient giving. By contributing to a DAF, you can:
- Claim an immediate tax deduction for your contribution.
- Recommend how the funds are invested for potential tax-free growth.
- Distribute the funds to your chosen charities over time.
DAFs are particularly useful when combined with the bunching strategy or when donating appreciated assets.
Consider Charitable Trusts
For those with substantial assets, establishing a charitable remainder trust (CRT) or charitable lead trust (CLT) can provide significant tax benefits.
These irrevocable trusts allow you to support charities while potentially reducing your tax burden. The choice between a CRT and CLT depends on when you want the donation to reach the charity.
Qualified Charitable Distributions (QCDs)
If you’re over 59½, you can make qualified charitable distributions directly from your IRA to eligible charities. This strategy allows you to avoid IRA penalties while excluding the amount from your taxable income.
Strategic Timing of Donations
Consider timing your charitable gifts to offset higher-than-normal income years. This approach can help reduce your overall tax liability in years when you experience windfall income, such as from a business exit or large bonus.
By implementing these tax-smart philanthropic strategies, you can make a meaningful impact on the causes you care about while optimizing your tax situation. Remember to consult with a financial advisor or tax professional to determine the best approach for your specific circumstances.
As you plan your charitable giving for 2025 and beyond, keep in mind that these strategies not only benefit you financially but also allow you to contribute more to the charities and causes that matter most to you. By giving strategically, you can create a lasting legacy of positive change while managing your tax obligations effectively.
About the Financial Planning Author
Alexander Langan, J.D, CFBS, serves as the Chief Investment Officer at Langan Financial Group. In this role, he manages investment portfolios, acts as a fiduciary for group retirement plans, and consults with clients regarding their financial goals, risk tolerance, and asset allocation.
With a focus on ERISA Law, Alex graduated cum laude from Widener Commonwealth Law School. He then clerked for the Supreme Court of Pennsylvania and worked in the Legal Office of the Pennsylvania Office of the Budget, where he assisted in directing and advising policy determinations on state and federal tax, administrative law, and contractual issues.
Alex is also passionate about giving back to the community, and has participated in The Foundation of Enhancing Communities’ Emerging Philanthropist Program, volunteers at his church, and serves as a board member of Samara: The Center of Individual & Family Growth. Outside of work and volunteering, Alex enjoys his time with his wife Sarah, and their three children, Rory, Patrick, and Ava.
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