Investing with Faith / Marty Kaiser

Charitable giving strategies: from the simple to the complex

Charitable giving is done for many reasons. It can be a way to provide help to those less fortunate, to support a ministry we feel passionate about or to honor a loved one.

Whatever the motivation, the U.S. tax code encourages these gifts. And while giving is not about saving on taxes, there are many ways to make your charitable dollars go further by using the tax code to your benefit. Below, I’ll briefly outline a few of the ways to give and possible tax implications, from the simplest to more complex strategies.

—Cash gifts. The easiest, quickest way to give is by check, credit card or debit card. You can possibly get an income tax deduction for this gift if you itemize on your federal tax return. (However, after the minimum deduction amount for charitable contributions was increased in 2018, most people now use the federal standard deduction.) Some charitable contributions can result in a tax credit on Indiana tax returns.

—Donating appreciated assets. Even if you do not itemize on your federal tax return, giving an appreciated asset like a stock directly to a charity may provide a tax benefit, like avoiding capital gains tax. If you do itemize, the fully appreciated amount of the gift is deductible.

—Qualified charitable distributions (QCDs). After age 70½, you can make QCDs directly from your traditional (pre-tax) IRA. For 2024, the QCD limit is $105,000. These distributions are not included in your taxable income. If you are taking required minimum distributions (RMDs), QCDs count toward your distribution requirement.

—Naming a charity as beneficiary of your traditional IRA or annuity. When you name a charity as the beneficiary of your taxable retirement account, the assets in the account will pass directly to the charity upon your death, avoiding income tax on the distribution.

—Donor advised funds. Setting up a donor advised fund is a great way to set aside funds for future charitable giving. To save on taxes, make a large tax-deductible contribution to the donor advised fund and then give the funds to charities through time. The fund grows tax-free and can be invested for growth. Note: the archdiocesan Catholic Community Foundation (CCF) offers Catholic donor advised funds.

—Creating an endowment at a community foundation (like the CCF). An endowment is a permanent fund established to support charitable causes. When you create an endowment, you donate a specific amount of money to the foundation, and the foundation invests the funds and uses the earnings to support your designated charitable purposes.

—Naming a charity in your will. Naming a charity in your will is a straightforward way to make a bequest after your death. You can choose a specific amount or percentage of your estate to be donated to your chosen charity.

—Advanced techniques. A charitable remainder trust is a legal arrangement that allows you to make a gift to a charity while retaining a lifetime income stream, while a charitable lead trust is a legal arrangement where you transfer assets to a trust and the trust pays a fixed or variable income stream to a charity for a specified period. After the term ends, the remaining assets are distributed to your beneficiaries.

These are all wonderful ways to give to the important charitable causes in your life, like your favorite parish, school or archdiocesan ministry. You can make a significant impact while maximizing the benefits of your generosity.

Whether you are looking for a simple, straightforward approach or a more complex technique to optimize your tax savings, there is a giving strategy that is right for you. If you would like to know more about using one of these techniques, please reach out to the Catholic Community Foundation.
 

(Marty Kaiser, a parishioner at St. Paul Parish in Tell City, is the senior executive vice president and financial advisory group manager at Springs Valley Bank & Trust in southwestern Indiana. He serves on both his parish council as well as the archdiocesan Catholic Community Foundation Professional Advisory Group. This article is not intended as tax or legal advice. CCF can be reached at 317-236-1482 or ccf@archindy.org.) †