Philanthropy can play an important role in financial planning, offering both personal satisfaction and potential financial benefits.
Whether motivated by sincere generosity, tax advantages, or a desire to leave a positive legacy, strategic charitable giving can be a thoughtful way to align personal values with financial planning while supporting the community.
This blog seeks to help readers better understand some of the key components of charitable giving and how to integrate them into their financial strategy.
Tax Benefits Through Charitable Deductions
Charitable donations may help reduce your taxable income for certain individuals who opt to itemize their deductions.
Qualified organizations are eligible to receive tax deductible contributions, and the IRS has a Tax Exempt Organization Search Tool to confirm if a nonprofit is eligible to receive tax-deductible contributions under section 501(c)(3). If the organization is a 501(c)(3) charity, recipients may want to consider retaining receipts of any qualified donations, as they could be required to provide it in the event that they are audited.
For most individuals, the limit on charitable cash contributions is generally 60% of adjusted gross income (AGI), though certain qualified contributions may be deductible up to 100% of AGI if specific IRS criteria are met. These enhanced limits were temporarily available under COVID-era legislation but reverted back to standard thresholds after 2021. Planning larger donations in years with higher income levels also has the potential to impact an individual’s tax bracket.
Additionally, using a Qualified Charitable Distribution (QCD) from an IRA is a tax-efficient option for individuals over 70½, according to the IRS. This allows donors to transfer up to $105,000 tax-free directly to a charity, counting toward required minimum distributions.
“Each eligible IRA owner can exclude up to $105,000 in QCDs from taxable income,” the IRS website states. “Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined. QCDs don’t require itemizing deductions.”
Donor-Advised Funds (DAFs)
In some cases, donor-advised funds (DAF) may offer versatility with charitable giving.
Fidelity’s DAF guide describes them as “a charitable investment account for the sole purpose of supporting charitable organizations you care about.” DAFs are the “fastest-growing charitable giving vehicle” in the U.S., according to the guide, because they are “one of the easiest and most tax-advantageous ways to give to charity.”
A DAF allows donors to contribute assets, such as cash or securities, to a dedicated fund, claim an immediate tax deduction, and recommend grants to charities over time. It is important to note that contributions to a DAF are irrevocable, however.
Estate and Legacy Planning
Philanthropy can also be integrated into estate planning as a way to reflect personal values and charitable priorities. For some individuals, naming a qualified charity as the beneficiary of a retirement account may result in tax advantages compared to leaving those assets to heirs, depending on the structure of the estate and current tax laws.
“Charities are exempt from taxes, so leaving non-Roth retirement assets to a qualified charitable organization and other assets to your heirs can help reduce your heirs’ tax bill,” NerdWallet points out. “Even leaving a portion of your retirement plan to charity can help secure some tax benefits for your heirs.”
This approach allows individuals to potentially reduce estate tax liabilities while supporting charitable causes at the same time.
Additionally, life insurance policies may allow a charity to be named as the beneficiary. These charitable giving riders can often be attached to modern policies and do not include any additional cost in many cases.
“There is also no limit on the size of the policy that may be donated (since charitable donations have no ceiling for estate tax purposes),” a recent Investopedia article states. “This strategy does not impede the donor’s current investment strategy and can provide a useful way to dispose of an unwanted policy originally purchased to cover a need that no longer exists.”
Conclusion
At Moran Wealth Management®, we recognize that strategic charitable giving can be an important part of a well-rounded financial plan. Whether you’re passionate about education, the arts, human services, or another cause close to your heart, philanthropy offers a meaningful way to align your values with your long-term financial goals. Our team helps individuals and families explore thoughtful strategies to incorporate charitable giving into their broader wealth management and legacy planning.
To learn more about how we can support your philanthropic vision, connect with our team.
Sources
- Internal Revenue Service. (2024). Publication 526: Charitable contributions.
- Internal Revenue Service. (2024, January 17). Give more tax-free: Eligible IRA owners can donate up to $105,000 to charity in 2024.
- Internal Revenue Service. (n.d.). Charitable contribution deductions.
- Fidelity Charitable. (n.d.). What is a donor-advised fund?
- Investopedia. (n.d.). Giving to charity using life insurance.
- NerdWallet. (n.d.). Charitable giving: How to donate wisely.
- San Diego Foundation. (2024, March 14). What to know about donor-advised funds in 2024: Rules, tax deductions, comparisons, and more.