These days, there seems to be a never-ending stream of calls, emails and letters asking for donations. With all those requests, it really can put you in a bind. You want to help, but it can be overwhelming deciding who or what to support and how much to give.
The solution? Reconsider your approach to charitable giving. If you build it into your financial plan, you benefit in several ways. You have the satisfaction of knowing you’ve thoughtfully chosen who and what you want to help. You have a plan in place that makes generosity happen. You may be able to give more, and you might even gain some tax advantages.
Develop a charitable giving strategy
The first step is to develop clear goals for your charitable giving along with a strategy that fits your donations into your financial plan.
"We tell our clients to think about giving much like you think about saving for retirement, college or a family vacation," says Jennifer Cords, a Thrivent wealth advisor and founding partner at Cedar Cove Wealth Partners in Bloomington, Minnesota. "You typically set specific goals for how much to put away for retirement in a given year. It should be the same for generosity. If you want to give 10% back, then make sure that's included in your overall financial planning."
Mandy Tuong, president and CEO of
Another critical part of your giving strategy is understanding the ways you can give. Each of these options has specific benefits that may help you qualify for an immediate charitable income tax deduction, bypass capital gains taxes or receive income payments for life. Your financial advisor can help you learn more about each and choose the best for your needs.
While there may be tax benefits to charitable giving, many people's primary motivation is to share their values and passions or make a difference in an area that has personally impacted their lives. There are various ways to make charitable gifts now, including through cash donations, donating securities or real estate or making qualified charitable distributions from an individual retirement account (IRA).
You also can give through planned gifts that are arranged in advance, such as upon your passing. You can set these up through a will or living trust, as beneficiary proceeds or through life insurance, allowing you to leave a gift to an organization that's important to you as part of your legacy.
Give & receive
Several options for planned giving can provide you with ongoing income while supporting the causes you care about most. These include charitable gift annuities and charitable remainder trusts. With these, you may receive income payments for a specific period, after which the remaining funds go to the charities of your choice after death.
How carry-forward charitable deductions work
Another crucial part of charitable giving tax strategies is understanding tax deduction limits and how they may affect your contributions each year. If you expect to be in a higher tax bracket in the future, it may benefit you to carry forward a tax deduction for your charitable donations.
Charitable donations are tax-deductible, meaning you can claim a deduction for the value of your contributions to charitable organizations. This can lower your taxable income and potentially result in a lower tax bill.
You also can carry forward the charitable deduction when you make charitable donations. That means you can carry over any contributions you cannot deduct in the current tax year because they exceed your adjusted gross income limits into future tax years.
We help clients decide from a numbers perspective and what is in their heads. And we also help them consider what is in their hearts.
Charitable giving tax strategies
There are financial tools that fit a wide range of incomes and allow you to donate assets or money while potentially maximizing a
Make cash donations
One of the simplest approaches to charitable giving is through cash donations. These include gifts from checks, cash, electronic funds transfers, online payments, debit and credit cards, payroll deductions, or gift cards redeemed for money.
- Make your gift go further. Anyone can use Thrivent’s
online giving platformto make a personal donation to your favorite enrolled organization and Thrivent pays the processing fees.*
You also can consider setting up scheduled contributions to a charity or a donor-advised fund. That way, you won't have to worry about remembering to do it, and the organization can count on your regular donation.
Be sure to keep track of your donations for tax purposes. For the tax year 2023, the charitable giving limit for cash donations is 60% of your adjusted gross income.
Set-up a donor-advised fund
As soon as you make the gift, the value of the gift (i.e., if it is cash, the amount given, or if it is another type of asset, like real estate, its appraised value) is considered a donation and may be eligible as a tax deduction that year. Then you choose when to grant money from the fund and which charities to give it to. In addition, any investment growth stays in the fund, so it's not taxable and increases how much you can give.
Kristin and Chris Daniels from Plymouth, Minnesota, worked with Cords and Thrivent Charitable to help them structure their giving with a donor-advised fund (DAF). "What we have isn't ours forever," says Kristin. "It's something we've been given, and we see it as our obligation to give away. We have more than enough, and we can share that."
The Daniels family has a passion for supporting women-owned businesses. So, while their money is in that fund, they're helping a cause they care about. "We set it up because it makes it so easy to give," says Kristin. "We can put money aside on a schedule that works for us and give to the charity of our choice. Plus, while it's sitting in the DAF account, it's invested in something that has an impact."
When statements from the DAF arrive, the whole family reviews it. "The DAF gives me an opportunity to talk to our kids about how we give," says Kristin. "We can go through the statement with them, and they can see what we're helping." It also gives the boys a chance to talk about what causes they would like to help and teaches them about the importance of generosity.
Make a qualified charitable distribution (QCD)
If you are 70½ or older, you can use assets from your individual retirement account to create a fund that supports your chosen charities through the qualified charitable distribution (QCD) process. This can be a giving option for retirees as it satisfies required minimum distribution (RMD) requirements while potentially providing charitable contributions tax deduction benefits.
"These withdrawals typically would be considered income and subject to income taxes," says Alan Cox, director of estate and trust planning, in a division of Thrivent Trust Company. "But you could instead create a
You can donate up to $100,000 per year, and your donation will count toward your RMD requirement. Keep in mind that this only applies for traditional IRA RMDs (not 401(k)s) and the charity must be qualified by the IRS.
- Gifts can go to a
charitable remainder unitrust(CRUT), charitable remainder annuity trust(CRAT) or charitable gift annuity(CGA).
- For the gift to count, it must come from your IRA by Dec. 31.
Work with your financial advisor and tax professional to see if a QCD is right for you.
Other options for maximizing charitable donations
While donating money is popular, there are other ways to be generous, and they also may have some tax advantages. Consider the following:
Gift appreciated assets
However, there may be ways to minimize or avoid capital gains taxes, such as by charitable giving.
- You may give stocks or mutual funds to a charitable foundation, such as Thrivent Charitable, and designate the charities you support to receive ongoing gifts from a donor-advised fund established in your name.
- If you want to gift your home, you may set up a "remainder interest," where you're allowed to live in it for the rest of your life, and the charity gets the home upon your death.
Leave assets to charity in your will
You can include
- Leaving property—such as your home, vehicle or real estate—to charity
- Specifying in your will that a specific amount of money or asset should be given to a charity
- Indicating that a charity should receive a portion of your estate after all other bequests have been distributed
Set-up a charitable gift annuity
You can set up a
Establish a charitable trust
charitable remainder trustis set up so you or others you designate have an income stream from the trust while you're alive, and a charity receives the remaining proceeds upon your death.
- A charitable lead trust supports a charity while you're alive, and the remaining proceeds go to your family or others upon death.
Consult with a financial advisor or tax professional to understand the tax implications of charitable giving.
Create a strategy for generosity for a greater impact
You can do more for your favorite organizations and causes when you understand the rules and develop a well-considered strategy. When you build giving into your financial strategy, you benefit in multiple ways—your giving is assured, and you provide for your family in a tax-efficient way.
To incorporate charitable giving strategies into your financial goals, connect with a local