As a tax-focused financial planning practice, we have built quite a lot of depth in the realm of tax-advantaged charitable giving. We are often able to help charitably inclined people’s money go further by implementing various tax strategies.
There is often confusion about how giving to charity actually saves you money. In most cases, what actually happens is that for every dollar you give to charity, you get ~25 cents back on your taxes. As an example, if you’re in a 24% tax bracket and give $5,000 to charity in a tax-deductible way, you will have saved $1,200 on your taxes (24% of $5,000). On an after-tax basis you gave away $5,000, but only had to spend $3,800 to do so. Your money went further, but you still gave it away. But that’s okay, because that’s what charity is about 🙂
Here are some of the most common ways in which we will help your charitable dollars go further:
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- Donate low basis stock – if you have a holding in a taxable account that has appreciated, you can give the stock to charity. You won’t have to pay the capital gains on it and they won’t either.
- Qualified Charitable Distributions (QCDs) – If you’re older than 70.5, donate money to charity directly from your IRA. It’s one of the very few tax free ways to get money out of your IRA.
- Wait until 2026 – The first $1,000 ($2,000 for joint filers), given to charity will be deductible if you’re not itemizing. Feel free to pledge money to charity in December, but it may make sense to wait until January to actually cut the check.
- Bunch your donations using a Donor Advised Fund (DAF) – If you don’t quite have enough deductions to itemize every year, we can help you bunch multiple years of charitable giving into a donor advised fund to get you over the itemization threshold this year. You can then send money out of the Donor Advised Fund at your convenience over the coming years.
- Even if you don’t do any of these, many states (including Massachusetts), allow a deduction for charity on the State tax return.
Not quite charity, but a great way to invest with purpose – Community Organizations will sometimes issue bonds, and this is a great way to help a local cause without actually giving your money away because, presumably, they will give the money back. Greenfields Market did this a few years ago, and River Valley Coop just did it this year. Both paid reasonable interest rates, and while this is higher risk than treasury bonds, for example, many of the people we serve felt that the risk was worth it to help the local community. We have also helped people make these types of investments using their IRA, although there are a few extra steps involved.
— Sam Plotkin, CFA