Californians are very generous. They donate about 2 percent of their income to charity, which amounted to more than $26 billion in 2013, according to the Urban Institute’s analysis of data from the National Center for Charitable Statistics. If you plan to support your favorite causes this year, consider these simple, tax-smart strategies that help your charitable dollars have more impact.
1. Understand How Much You Give
Recent studies have shown that people in the U.S. generally overestimate the amount they give. In its 2015 Money for Good report, Camber Collective found that 75 percent of donors thought they give more than the 3.6 percent of household income average, while 72 percent actually gave significantly less — around .5 percent of their household income. When people realize that our giving is far more modest than we thought, we are often motivated to give more. And if we each made even a modest increase to our charitable giving, the impact would be tremendous. Consider, for example, if those who currently give less than 2 percent of their incomes increase their charitable gifts by just 0.5 percent, an additional $23 billion would be available to support our schools, hospitals, museums, homeless shelters, job training programs and other worthy causes.
2. Donate Non-Cash Assets
Donors who write a check or give cash to help support their favorite charities may be unaware of tax-efficient alternatives, which could increase the size of their donation. Especially for a business owner or investor, appreciated, non-cash assets can be among the best items to give to charity. These may include publicly-traded stock as well as more complex assets such as restricted stock, interests in private businesses (C-Corp and S-Corp), real estate, private equity, venture capital funds and hedge funds.
When you give appreciated assets that have been held a year or more, you can enjoy a current year tax deduction and potentially eliminate capital gains tax liability on their sale. This means, along with the tax savings, you could potentially give up to 20 percent more than you otherwise would. The U.S. stock market and other asset classes have performed well in recent years, so it may be a particularly good time to donate your highly-appreciated assets.
3. Consider a Donor-Advised Fund
Donor-advised fund accounts are designed to make giving convenient and tax-smart. Many donor-advised funds streamline the process of donating non-cash assets, including those associated with financial institutions, such as Schwab Charitable, and many California-based community foundations. If your favorite charities cannot accept these assets directly, you can donate them to a donor-advised fund which liquidates the investments or assets and then deposits the proceeds in your donor-advised fund account. Then, you can grant to charities of your choice over time. Assets in a donor-advised fund account are also invested for potential future growth, which may allow you to give more for longer.
4. Incorporate Charitable Planning into Financial Planning
Incorporating charitable planning into your everyday financial and wealth management ensures your philanthropic goals are aligned with your other financial goals and priorities. Some charitable accounts can be integrated with online investment and banking accounts so you are constantly reminded of your giving priorities. This will help to further activate giving and combat the “above average” bias.
By taking a few simple steps to better understand and prioritize your philanthropy, you can maximize your tax benefits and the impact you have on the causes meaningful to you.