Typically, this time of year many of us start thinking how quickly the year is slipping away.  It tends to be a great time to review your financial situation to see if changes need to be made prior to year-end.   No doubt, the pandemic and perhaps concerns over losing a job might be more top of mind.  But for those feeling secure in their employment picture or those retired, considering some form of charitable giving can have both a financial and psychological benefit to you. 

Most people like the idea of supporting a specific cause or organization.  Even if they don’t get the benefit of a deduction on their tax return.  The easiest way to make a gift to charity is by simply writing a check.  But in a time period of great market and economic uncertainty, for peace of mind many people are opting to keep extra cash on hand.  Contributing long held appreciated assets is an excellent alternative.  

One way to accomplish this is to make use of a Donor Advised Fund (DAF).  These are charitable entities, sponsored by large financial institutions such as Fidelity, Vanguard, or Schwab.  You can go directly to the institution or through a financial advisor to set up a donor advised account.  This gives you the ability to more easily transfer highly appreciated assets like a mutual fund or stock.   The moment the asset is deposited to the account, the gift has been made and you avoid paying any tax on the gains of the asset.  If you itemize deductions, its value can then be used as a deduction on your tax return.  This gives you more time to determine which actual charities receive checks from your DAF.  This is a great strategy to use near the end of the tax year. 

But let’s say you haven’t had quite enough deductions to itemize.  You get no tax benefit for making gifts to charity because you use the “Standard Deduction” on your tax return.  But what if you lumped several years’ worth of charitable contributions into one year?  It just might get you well over the Standard Deduction and allow you a greater deduction in that year.

As an example, if you usually make $5,000 a year in charitable gifts, and let’s say you have an old mutual fund that has a significant gain on it, worth $25,000, you could contribute that asset to your DAF.  It would be like lumping 5 years of contributions into one.  You get a greater amount to deduct in the year you transfer the asset.  Then over the next 4 or 5 years, you write checks to various charities from your DAF, not your personal checking account.  It would be wise to consult your tax accountant or financial advisor for this strategy. 

Even small businesses have a unique opportunity for giving.  According to Inc.com, charitable giving by small businesses most often takes the form of contributions of goods and, less often, services. Indeed, many companies have made donations of obsolete, excess, erroneously packaged, or slow-moving inventory. The bottom-line advantages of such donations are considerable for small companies. “Not only can you get rid of that inventory and free up warehouse space, but you also can get a hefty tax deduction—often, more than your production costs—and at the same time help a not-for-profit organization,” wrote Marsha Bertrand in Nation’s Business.

Charitable giving can be a very important part of your tax, estate, and financial planning.  But just as important is the psychological benefit of bringing your personal success to a level of significance by helping charities, and in the process, begin to create a legacy of which you can be proud. 

Sources: Bertrand, Marsha. “Donations for Deductions.” Nation’s Business. January 1996.

Disclosure: Marshall Financial Group, Inc (“Marshall Financial”) is an SEC-registered investment adviser with its principal place of business in Doylestown, Pennsylvania.   This newsletter is limited to the dissemination of general information pertaining to Marshall Financial Group’s investment advisory services.  Investing involves risk, including risk of loss.

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