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Investing

Are you maximizing your charitable giving?

If you, too, are planning on donating to charity this year, be sure to consider these best practices and helpful tips to help you maximize your impact. 


Giving season is upon us. Every year, Americans generously contribute billions to charity - according to GivingUSA, that figure topped $489 billion in 2021.1 With the holiday season approaching, and with the end of the tax year nearing, this is the time many individuals and families make their charitable giving decisions for the year.

If you, too, are planning donating to charity this year, be sure to consider these best practices and helpful tips to help you maximize your impact.

Put Purpose and Impact at the Center

Giving to charity is always best when done from a place of true altruism, commitment to a cause or a desire to help. Not sure where to direct your gifts? Starting with your own values and giving in line with what moves you is always a great place to begin. Consider what drives you — is it a desire to make a positive social change, to help your local community or to assist those less fortunate? Perhaps you want to support the arts or education, or have concerns about the environment? Not only is giving from the heart the most personally satisfying, studies have shown that when donors give to causes they truly care about, they are far more likely to make repeat donations, commit long term and get involved with organizations in other ways, like volunteering.

For many families, philanthropy is a shared activity and even a treasured family tradition. Discussing your charitable priorities with younger family members is a great way to connect as a family and demonstrate your values – some even describe philanthropy as “family values in action.” Some families choose to include older children in the charitable decision-making process, giving the next generation a feeling of ownership in the family’s commitment to charity. Today, there are many resources online for researching and vetting charitable organizations, including third-party aggregators candid.org and Charity Navigator, and a charity’s own website, which frequently includes important details about current fundraising needs, spending priorities and even audited financial statements.

Take advantage of the charitable income tax deduction

In addition to supporting worthy causes, charitable giving can also offer important tax advantages. For donations made this year, donors may be able to receive a charitable income tax deduction against their 2022 income. If you have significantly increased income, such as in the year of a business sale, it may make sense to make outsized charitable donations, and potentially use a charitable structure (see more below).

To receive an income tax deduction for 2022, gifts must be made on or before December 31. For gifts sent by mail, the donations must be postmarked no later than Saturday, December 31. For gifts of securities, mutual funds or illiquid assets, a longer lead time is required – be sure to reach out to your advisor well in advance to ensure funds can be transferred and trades settled before year-end. Finally, to receive a charitable deduction you must itemize your deductions on your 2022 income tax return (if you take the standard deduction you cannot claim a charitable tax deduction).

Selecting between assets can yield further tax benefits

While donating cash is simple and fast, experienced philanthropists take the time to evaluate which assets to donate, and the corresponding tax benefits of contributing assets other than cash. For example, one generous donor was surprised to discover she could donate shares of stock that had increased in value significantly. In doing so, she was able to claim an income tax deduction for the full, fair market value of the shares and also avoided tax on the unrealized gain. While not all charities accept shares of stock, many do, and the added benefit of a charitable deduction plus avoidance of gain can make this a very appealing strategy for many individuals. In fact, depending upon the organization, you may be able to donate a variety of appreciated assets, including stock or cryptocurrency, or even a piece of real estate or tangible property like a car.

If you’re over age 70½, you also have the option of making a qualified charitable distribution from your traditional IRA directly to a qualified charity. This transfer can fulfill some or all of your required minimum distribution if you’re over age 72. You won’t receive a tax deduction for a qualified charitable distribution, but the amount you transfer to charity won’t be included in your income for the year, which can help keep your tax bracket lower, among other benefits.

For longer-term commitments, consider planning your philanthropic strategy

For many truly philanthropic individuals and families, there may come a time when it makes sense to consider a planned giving strategy. “Planned giving” generally refers to an organized, thoughtful strategy for making charitable gifts beyond writing the occasional check or responding to a solicitation from a friend. Planned giving can include naming a charitable organization in your will or other estate planning documents. If you also want to give money in a thoughtful way during your lifetime, it can also include opening a donor-advised fund account or establishing a charitable vehicle such as a private foundation. 

Private foundations require the services of a lawyer and an accountant, and typically make sense only for very large contributions. There are other considerations, too, such as the ongoing administration and oversight of the entity, board formation and management, and ongoing tax filing obligations. With these costs, though, comes a great deal of flexibility as you invest and ultimately give away funds, and a private foundation can serve as a permanent entity to perpetuate your charitable legacy.

Setting up a donor-advised fund (DAF) account, by contrast, is easy. Unlike private foundations, DAFs require no startup costs or ongoing tax filings and may be suitable for more modest initial contributions. Your investment choices are more limited than in a private foundation but can include a broad range of strategies, including customized portfolios. You may recommend grants from time to time, as frequently and to as many organizations as you wish, although the DAF provider has the ultimate authority to decide whether or not to make a grant. This reduced control is offset by a higher potential tax deduction limit available for contributions to a DAF and by the ease of its administration.

Your accountant, attorney and financial advisor can help you decide whether a planned giving strategy is appropriate and if so, which vehicle makes the most sense for you.          

Your advisor can help maximize your giving

Your financial advisor can help you advance your philanthropic strategy with information, resources and experience. Working with you and your family, your advisor can help match your giving goals with charitable giving best practices, taking into account these and other issues:

  • How can I maximize my charitable impact this year?
  • How does my charitable giving fit in with my overall financial plan?
  • Am I incorporating the tax benefits of charitable giving into my strategy? What is the impact of inflation?
  • Are planned giving vehicles right for me?

With so many options for giving, engaging your trusted advisor is an important first step to help you achieve your charitable goals and realizing your philanthropic vision. 

 

1.The Chronicle of Philanthropy, “2021’s surprisingly strong giving…and the dark clouds over 2022.” (June 2022)

 

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitute J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

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