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Even as a child, Zachary Conway’s financial adviser father instilled the importance of saving and giving to charity in his son’s heart.

The founder and CEO of Seeds Investor, Conway, recently shared his storey with the Framework podcast crew. It was with this in mind that he split up his monthly allotment into three separate containers: one for savings, one for shopping, and one for charity.

Charitable thinking can start early in life, for as by putting money away in a savings account for charitable causes. You may find a subject you are passionate about later in life, though.

Charitable giving may be made more accessible to a broader range of individuals by utilising retirement and other assets that have risen in value. If you don’t have the money to write a hefty check to your favourite charity from your bank account, you may be able to use your retirement funds or other assets that have risen in value.

Altruism is the most common motivation for charitable donations, not tax deductions. However, the tax advantages may outweigh the drawbacks. It is possible to use your assets in a tax-efficient manner to achieve your goals, and this article will help you do so.

In spite of the ongoing worldwide COVID-19 epidemic and societal instability that dominated 2020, rich households continued to give to charity causes. Nearly 90% of affluent households are expected to continue their philanthropic contributions in 2020, according to Bank of America.

One way to use your assets for charitable giving is through the use of donor-advised funds, eligible charitable distributions, and gifts of appreciated shares. We’ll go over these options.

 

Contributions from Individuals or Organizations with Specific Interests in a Project

An Investment Counselor| Financial Advisor

DAFs are a great way to optimise your philanthropic contributions. 501(c)(3) non-profit entity controls the assets and manages the grant administration procedure for the project. For this reason, they have the last word on where your money goes, although you may at least offer early recommendations to them.

To get a tax deduction, you must make an irreversible contribution to the DAF using either cash or other assets that have gained in value, such as stock.

Suppose that you contribute $2,500 a month to charity (a total of $30,000 a year) to the DAF, and you obtain a tax deduction for the year in which you make the gift.

When you donate to the DAF, you obtain a tax deduction, but you can’t deduct the same amount again when the money is transferred to a qualifying charity from the DAF.

DAFs distribute $2,500 every month to charity, but you’ll get the deduction for the five years worth of gifts immediately, rather than $30,000 per year over the five years, which could really be more advantageous to you.

 

Non-Profit Organizations

 

Your IRA is an often-overlooked source of income for charitable donations. A qualified charitable distribution (QCD) is a rollover from your IRA that you make to a charity of your choice rather than using it to meet your required minimum distribution (RMD).

Your needed minimum withdrawals for living costs can be donated to make a difference while also providing you with a tax advantage. Cash is possible to withdraw up to $100,000 from your IRA and donate it to a charity if you are already in retirement and subject to minimum withdrawals.

It’s possible to gift up to $200,000 to your favourite charitable causes from your IRA tax-free if you’re married, as each spouse may make a QCD.

An over the line deduction and a dollar-for-dollar reduction in income are the result of this.

 

Remainder Trusts for the Charity of Your Choice

 

The caveat to charitable remaining trusts is that you may have to wait until the next year to gain the tax advantages.

If you’re dealing with a trust, you’ll need an estate planning attorney to prepare the trust agreement, and the timeframe may not allow you to do so by the end of the year.

In any case, a CRT is an irrevocable trust formed to pay current beneficiaries (you) each year, with the remainder of the balance being transferred to a charity at the end of its term (this might be you).

It works like this: The CRT is created by your attorney, and then you, the attorney, and your financial adviser work together to establish the asset you’re going to put into it and the current and remaining payment conditions. If you choose a Charitable Remainder Unitrust (CRUT), a fixed annual amount will be distributed, but additional contributions cannot be made; or if you choose a Charitable Remainder Annuity Trust (CRAT), a fixed percentage of trust assets will be distributed, but additional contributions can be made.

CRT settings, however, have a terminus and a mandated amount or percentage of trust assets must be released (5 percent of trust assets, but not more than 50 percent , and the charity has to receive at least 10 percent of the actuarial value of the assets initially transferred to the CRT at the end of its term).

 

Charitable Donations of Valuable Assets

An Investment Counselor| Financial Advisor

In addition to contributing cash to your favourite organisations, you may also donate valued publicly listed shares instead.

Donors can deduct the fair market value of the stock at the time of the gift, the donor avoids capital gains taxes, and the charity does not have to pay any taxes as a result of the donation.

Be aware that stock contributions are limited to 30% of your adjusted gross income, whereas cash donations are limited to 60% of your adjusted gross income.

 

Concluding

 

Although most individuals donate to charity to support issues they care about, you may do it in a way that benefits both yourself and the organisation.

Hopefully, this article will provide you with some facts to discuss with your financial advisor, who can assist you in making the most appropriate charity giving options for your situation.

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