Year-End Philanthropy: Making the Most of Charitable Contributions

Giving season is upon us. How will you help clients make the most of their charitable contributions? 

Individuals across diverse financial backgrounds want to make an impact.  

For most, donating is motivated by individual values and a spirit of altruism, rather than financial incentives. Americans gave $471 billion in 2020, and nearly 90% of affluent households donated. 

Studies show that three in four donors would give the same amount even if they did not receive tax advantages. However, there is still a worthwhile discussion to be had about the financial advantages of charitable giving. 

As we near year-end, now is the perfect time to have conversations with your clients about the tax benefits of charitable giving. 

Immediate Tax Benefits of DAFs 

One way to maximize the impact of clients’ charitable strategies is by leveraging a giving tool like a donor-advised fund (DAF). 

Charitable contributions are tax deductible in the year they were made. Your client will receive an immediate tax receipt upon contribution to the donor-advised fund account. They then can invest and grow these assets tax-free. 

Ease of Tax Reporting 

Donor-advised funds are one of the most effective ways to formally track giving. Clients will receive one tax receipt that outlines the contributions throughout the year. They will additionally have a record of how those contributions were distributed. The fund itself is a 501(c)3, meaning that the tax benefits are applicable based on contribution to the fund, rather than distribution from it. 

Donating Appreciated Stock 

Your client can contribute a range of assets, including appreciated stock. Individuals can donate individual stock, mutual funds, ETFs, and bonds directly to a donor-advised fund. Donating directly to the DAF—rather than liquidating and donating proceeds—reduces tax liability. Once the investment is donated to a DAF, your client will not pay capital gains tax generated by the donated assets. 

Bunching During Windfall Year 

If your client has experienced a windfall year, one strategy to consider is “bunching.” By contributing a larger-than-usual sum to their charitable savings account, a donor-advised fund, they will receive the maximum available tax advantages in this year. They then have the flexibility to distribute grants to meaningful non-profit organizations on a more flexible timeline. 

The client receives a tax deduction in the year the contribution is made, rather than the year the assets are granted to the recipient non-profit organization. This advantages clients who know they want to give but have not yet determined how they wish to allocate their grants. This also benefits those that have incurred additional income, such as from an inheritance or sale of a business.

This holiday season, consider donor-advised funds as a tool to support clients' holistic wealth and philanthropic goals.

Learn more about how charitable planning can strengthen the client relationship.