It’s never too early to get started on year-end giving plans. In the spirit of generosity—and maximizing community impact—here are several tax-advantaged charitable giving strategies worth considering with your clients.
1. Establish a Donor Advised Fund
Donor Advised Funds (DAFs) are a vehicle through which individuals, families, and businesses can make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time without any yearend pressure. Meanwhile, the DAF can be invested, giving it the potential for tax-free growth. There are many benefits to establishing a DAF, but put simply, DAFs give donors the flexibility to donate the right asset at the right time, so they can maximize their ultimate charitable impact and provide thoughtful, strategic support to causes most meaningful to them.
2. Donate Appreciated Assets
One of the most tax-efficient ways to give is by donating appreciated assets held long-term (i.e., held more than one year), including stocks, bonds, and other securities. Donating such appreciated assets directly to charity can increase the amount available for charities, while ensuring that the donor receives a tax deduction for the value of their gift and avoids the capital gains tax they would incur if they simply sold the assets.
Donors can donate appreciated assets directly to end-user charities, or they can use that gift to establish or add to a charitable fund—including, but not limited to, DAFs. Some nonprofits don’t have the capacity to accept gifts of non-cash assets—especially more complex assets like real estate or closely held business interests—but those organizations will have no trouble accepting grants from your client’s charitable fund.
3. Get Strategic About Qualified Charitable Distributions
Individual retirement account (IRA) owners age 70½ or older have the option to roll over up to $100,000 annually from an IRA—indexed for inflation starting in 2024—directly to a qualifying charity or qualifying charitable fund. Whether they itemize or take the standard deduction, the distribution can be used to satisfy all or part of the donor’s required minimum distribution (RMD), if applicable, but the assets are not recognized as income. This technique, known as a qualified charitable distribution (QCD)—or more colloquially, a charitable IRA rollover—is a well-established, easy, and popular way to give money to charity, while bypassing the tax liability of an IRA withdrawal and reducing adjusted gross income, which might help keep some clients in a lower tax bracket.
Many donors give their QCD directly to a qualifying nonprofit, providing the organization with immediate operational funding. This approach always makes sense in the case of smaller annual QCDs, but if a donor is donating tens of thousands of dollars to charities in a given year, there might be more strategic options worth considering.
Current restrictions do not allow individuals to use a QCD to fund DAFs, private foundations, or supporting organizations, but several popular charitable giving vehicles can be funded with a QCD, including Designated Funds, Scholarship Funds, and Field of Interest Funds. Designated Funds are a particularly popular tool for donors who provide consistent annual support to one or more organizations because they are designed to distribute grants annually to the organization(s) the donor identifies when they create the fund. Donors can use Designated Funds to endow their favorite charity (or charities) or to frontload their giving by setting up a Designated Fund that pays out to a charity (or charities) over a term of years.
The time for year-end gift planning is now!
Donations generally must be received by nonprofits on or before December 31 to qualify as charitable deductions on 2023 tax returns. Gift execution is not instantaneous, and some gifts of non-cash assets can take several weeks or longer to process, so plan ahead. And keep in mind that the last business day of 2023 is Friday, December 29 for the markets and Saturday, December 30 for the post office! Similarly, donors wishing to make a 2023 QCD should submit the request to their IRA custodian by late November to ensure the gift is received by December 31.
For 80 years, The Columbus Foundation has served as the vehicle through which thousands of people have expressed their ideals and optimism through philanthropic investment. Contact us if you are interested in learning more about how The Columbus Foundation can help your clients achieve their desired impact—in our community and beyond.
About The Columbus Foundation
The Columbus Foundation serves thousands of individuals, families, and businesses that have created unique funds and planned gifts to make a difference in the lives of others through the most effective philanthropy possible. The Columbus Foundation is Your Trusted Philanthropic Advisor and is one of the top 10 largest community foundations in the country.
