If you’ve been wondering how charitable giving might work within your financial plan, you’ve come to the right place.
As with all financial decisions…if, how, and why you choose to donate is personal. At C. Beach Brown we recognize that giving back is a choice, not a necessity. Some people choose to tithe 10%, some give significant sums, and others look at their tax payments as their charitable giving.
However, most of our clients ask us how they can give to charity while still funding their financial goals – and this is a valid question. It’s a wonderful thing to want to give back; we just want to make sure your own oxygen mask is on before you put on someone else’s.
Donor-Advised Funds
One option for charitable giving is contributing to donor-advised funds. Here’s how it works.
Let’s say you have a stock you paid $10 for that is now worth $100 and you know you’ll be paying the taxes on the gain of $90 when you sell it. If you transfer that stock directly to a donor-advised fund, you’re donating the full $100 value without selling the stock; the non-profit or the donor-advised fund that has a tax rate of zero sells the stock instead of you.
After you donate the $100 of stock, you then put $100 back into your portfolio and rebalance it. This is something we do for many of our clients; I find that people who have company stock use this a lot as they often have very low-cost basis and hesitate to sell positions due to the tax consequences.
Here’s another scenario.
In this situation, let’s say you usually give $10,000 per year to charity. In this case, you put $20,000 into your donor-advised fund every other year. In the year that you make these contributions, you itemize your deductions on your tax returns and on the off years, you take the standard deduction. Keep in mind that you are not required to pay out all of the money every year. You can make contributions when you want to the charity of your choice. As with all tax advice, please consult your tax advisor.
Be Intentional About Your Planning
When you use a donor-advised fund, it is an irrevocable contribution – you are getting the tax deduction in the year that the funding is done (not necessarily when you give it to charity).
You need to be thoughtful about how much you put into a donor-advised fund, but if you’re going to be making charitable contributions as part of your financial planning, you might as well do it in a tax-advantaged way!
Be intentional. Do you want to give to 25 small non-profits, or would you rather concentrate your giving to a few organizations you feel strongly about? Again, with charitable giving, there is no wrong amount, but there is a right way to do it. Donor-advised funds are just one of the charitable strategies you might consider, but it’s important to speak with your financial professional to find the best fit for you and your goals.
Cecilia Beach Brown Is a registered representative offering investment and advisory services through Lincoln Financial Securities Corporation, Member SIPC. Advisory Services are offered to residents of Maryland. LFS and its representatives do not offer tax or legal advice. Please see your tax or legal professional regarding individual circumstances. C Beach Brown, LLC, Pilot Financial Advisors and Lincoln Financial Securities are separate entities. LFS-3948050-120721