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Financial management

How to make the most of charitable donations

Learn how to make the most of your charitable donations.
7 minute read
  •  
September 23, 2022
Financial management
Charitable giving
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Estate planning
Tax tips
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Giving to charity is a profoundly personal and emotional act—it's rewarding to help individuals, communities, and causes we care about. Over the past few years, charitable giving has been strong; in 2021, U.S. charitable donations hit a record $484.85 billion.*


$484.85 billion

U.S. charitable donations in 2021


The generosity of Vanguard investors continually inspires me, and I'm honored to support and guide my clients toward their philanthropic goals. But one mistake I see my clients make is that they sometimes fall short of their charitable goals because they don't plan their giving in advance.

Just like saving for a home, retirement, or any other long-term goal, charitable donations need a strategy. Building a formal plan and updating it each year can help you meet your charitable goals while maximizing available tax savings.

Here are 5 long-term strategies I often share with my clients to help make the most of their charitable giving.

Donate appreciated assets instead of cash

It's easy to donate cash. But by giving appreciated securities, you can give more money to your charities and less to taxes. This is because you won't have to pay capital gains taxes when you donate appreciated assets, and your charities don't have to pay taxes when they sell them.

For example, if you wanted to give $10,000, you could give it as a cash gift. But if you have a stock fund whose value has increased by $10,000, consider donating the fund instead. You won't owe capital gains tax on the asset, you'll still receive a charitable deduction, and you'll meet your giving goals—possibly having paid less out of pocket. Learn more about how this works

Bunch your contributions to maximize deductions

In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act created a temporary tax deduction that allowed single or married filers to make qualified charitable cash gifts up to $300 without requiring itemized deductions. In 2021, it increased to $600 for married couples filing jointly. The good news is that you still don‘t have to itemize these deductions. However, the tax break is no longer “above the line,” which means it won't lower your adjusted gross income (AGI). Additionally, this benefit is not currently available for the 2022 tax year or future tax years.

Although this tax break can be helpful for smaller gift-giving in the moment, planning ahead and itemizing your deductions may be a better choice. When I'm helping my clients build their giving strategy, I recommend they "bunch” their contributions into 1 year if it yields a higher tax benefit. Donor-advised funds are a great way to bunch contributions and spread out distributions over time. 

When I'm helping my clients build their giving strategy, I recommend they bunch their contributions into 1 year if it yields a higher tax benefit.

- Taylor Turner, CFP®

Carry over your annual deduction limits for up to 5 years

You can deduct up to 60% of your AGI for the year for your cash donations. (Contributions of appreciated securities are limited to 30% of AGI.)

But if you want to give more, don‘t hold back! You can carry forward charitable giving above annual deduction limits for up to 5 years.


Note:
Limit of $100,000 not available for 2022 or beyond

Ready to rethink your giving strategy? Our advisors can help. Give us a call at 800-742-9998 Monday through Friday from 8 a.m. to 8 p.m., Eastern time.

Consider QCDs if you're 72

When you reach age 72 (or 70½ if you turned 70½ before 2020), you‘ll have to start taking a required minimum distribution (RMD) annually from your retirement accounts.

If you‘re not itemizing your deductions and you're at RMD age, you may want to consider donating your RMD to a qualified charity through a qualified charitable distribution (QCD). It'll satisfy your RMD and—up to $100,000 annually—won't count as taxable income. A financial advisor can help you figure out if this approach works for you.

Spread giving throughout the year

While most charities receive the bulk of their donations during the end-of-the-year “Season of Giving,” many organizations need funds year-round. Giving consistently throughout the year—rather than giving in bulk—can help with this. It may also help you budget for a bigger gift overall. With Vanguard Personal Advisor Services®, you can automate your gifting by setting up an automatic withdrawal plan for your QCDs to run monthly, quarterly, or whenever works best for you.

Name a charity as a beneficiary or leave a bequest in your will or trust

Thinking about what may happen after you‘re gone isn‘t anyone‘s favorite topic. However, I often encourage my clients to consider building charitable bequests into their estate plans if they‘re worried about giving too much too early.

Look at it as a legacy of giving. Naming a charity as a beneficiary or leaving a bequest in your will or trust allows you to give to causes that are meaningful to you without overextending yourself if you need to spend more on long-term care or other expenses. Additionally, charitable bequests are eligible for estate tax deduction and can reduce estate taxes.

Wondering what organizations to give to? Vanguard Charitable has tools to help you narrow your search.

Want help preserving your wealth?

Working with Vanguard Personal Advisor Services® gives you anytime access to advisors who are fiduciaries—always acting in your best interests. They‘ll provide investment coaching and work with you to balance multiple financial priorities, including saving for retirement and beyond. Call us at 800-742-9998 Monday through Friday from 8 a.m. to 8 p.m., Eastern time.

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*Giving USA: Total U.S. charitable giving remained strong in 2021, reaching $484.85 billion. Lilly Family School of Philanthropy. June 21, 2022.

 

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Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and Certified Financial Planner™ in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.