The Season of Giving: Incorporating Philanthropy into Your Financial Plan

As we approach year-end and the holiday season, charitable giving becomes a priority for many of us. Charitable giving can be a win-win situation for investors, as it is a way to do good by contributing to causes and organizations that have meaning to us and it can help with tax planning, estate planning, portfolio rebalancing and even required minimum distributions in some cases.

Philanthropy and Financial Planning

Philanthropy and charitable giving can play an integral role in your financial planning. Charitable contributions are tax deductible as long as you are able to itemize deductions on your tax return. Clearly, this aspect combines your philanthropic goals with the practical benefits of tax reduction.

There are a number of ways of making charitable contributions:

  • Cash donations. This is as simple as sending a check to your favorite charitable organization or making a donation online with your credit card.
  • Donations of appreciated assets such as shares of stock, mutual funds, ETFs, real estate holdings or others. The amount of the donation is the market value of the security on the date of the gift. In the case of real estate or a piece of art, it is generally a value established by a recent appraisal. Donating appreciated securities can also go hand-in-hand with any portfolio rebalancing you might be doing during the year.
  • Using a donor advised fund (DAF). This is a fund to which cash or appreciated assets can be contributed. The money is invested and donations to eligible organizations can be made over time. The tax deduction for contributions to the fund pertains to the year in which assets are contributed to the DAF.

Note that donations made with appreciated securities can have a double tax benefit in that the value of the securities donated can serve as a deductible contribution and any capital gains taxes that would be due if the securities were sold can be avoided.

The Tax Cuts and Jobs Act that went into effect for the 2018 tax year raised the level of the personal exemption and capped certain deductions, making it more difficult to itemize. If this is your situation, one strategy to consider is bunching multiple years’ worth of contributions together into a single year to ensure that you can itemize your contributions and save on taxes for that year.

Additional Charitable Vehicles

Besides the charitable giving methods discussed above, there are some other methods that can serve the dual purpose of fulfilling your philanthropic goals and providing a financial planning benefit.

Qualified charitable distributions (QCDs) are available to all traditional IRA account holders who are at age 70 ½. QCDs allow up to $100,000 to be distributed from their IRA tax-free to a qualified charitable organization. Beginning in 2024, this amount will be indexed for inflation. For those who cannot itemize and who do not need some or all of the money in the IRA, this can be a tax-efficient way to contribute to charity. Before the commencement of required minimum distributions, QCDs can serve to reduce future RMDs. QCDs can also be used to satisfy some or all of your RMD obligations once you reach the age where they are required.

Charitable trusts can be used in several varieties to contribute assets that will benefit a charity and also provide a benefit for one or more designated beneficiaries. Charitable remainder trusts and charitable lead trusts are two common forms. As the donor, you will receive a tax benefit from funding the trust.

Private foundations are a type of charitable entity formed by an individual, a family or a corporation to support their charitable endeavors. A board of directors or a group of trustees is established to oversee the foundation’s investments and charitable grants. There can be a number of tax benefits from a private foundation including deductions for assets donated to the foundation and the elimination of applicable capital gains taxes.

Establishing Charitable Goals

In determining what level of charitable donations to make and which organizations to support, it is important to look at your overall financial situation and causes that are important to you.

In deciding upon which organizations to support, some things to consider include:

  • Monitoring and assessing philanthropic impact of the organization. Does the organization make a positive impact upon the areas they serve?
  • Partnering with organizations to make a meaningful difference can have a profound personal impact on you. Decide what causes are important to you and look for organizations that make an impact on those causes.
  • Establish metrics and benchmarks for evaluating the effectiveness of donations. Adjust your giving strategies based on feedback and outcomes for these evaluations.

Incorporating charitable giving into your overall financial planning can be challenging, but also very beneficial. Contact your Wedbush advisor to discuss some strategies and tactics that fit your situation.



Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.