Strategic Philanthropy: Maximizing Impact While Minimizing Taxes

Successful philanthropy involves more than just generous giving. It requires thoughtful planning and strategic decision-making, especially when it comes to tax implications and wealth preservation. Whether you are an established philanthropist or just beginning your charitable journey, this guide is designed to help you gift more wisely by maximizing the value of your donations, reducing your tax burden, and ensuring the longevity of your philanthropic legacy.

Five Tax-Smart Giving Strategies

One of the most effective ways to minimize your tax burden while making a significant impact is by leveraging tax-smart strategies for charitable giving. Here are some key strategies to consider:

1. Donor-Advised Funds (DAF): These funds offer immediate tax benefits and allow you to provide grants to your favorite charities over time. You can contribute cash, securities, or other assets to the fund and take an immediate tax deduction.
2. Gifting as Part of Portfolio Rebalancing: This strategy allows an investor to give a portion of an asset to a DAF, reducing their exposure to that asset and thus rebalancing their portfolio without having to sell off assets. Then, utilize the deduction to lower the tax liability on the remaining value of the asset.
3. Gift Appreciated Securities or Restricted Stocks Instead of Cash: Rather than selling appreciated stocks, bonds, or mutual funds and donating the proceeds, consider donating them directly to the charity. This strategy avoids capital gains taxes and allows you to deduct the full market value of the securities on your income tax return.
4. Qualified Charitable Distributions (QCD): This strategy allows individuals over 70 ½ years old to donate up to $100,000 per year directly from their IRA. This strategy can fulfill required minimum distributions and reduce taxable income.
5. Charitable Remainder Trusts (CRT): This strategy allows you to donate assets while still receiving income from them. The donated assets are placed in a trust, which pays you or selected beneficiaries an income for a set period. After this period, the remaining assets go to the charity.

Wealth Preservation for Continued Giving

Philanthropy is not just about giving in the present but also about creating a lasting impact for future generations. Here are a few strategies to ensure your philanthropic legacy lives on:

• Endowments: Establishing an endowment allows you to create a permanent funding source for your chosen cause or organization.
• Family Philanthropy: Engaging family members in philanthropy can instill values and create a shared purpose, ensuring your legacy continues.
• Charitable Lead Trusts (CLT): This strategy allows you to create an income stream for your chosen charities while preserving wealth for your heirs. Assets are placed in a trust that pays an income to the charity for a set period. After this period, the remaining assets go to your designated beneficiaries. 
• Private Foundations: Private foundations allow individuals or families to create their own charitable organizations and have more control over how their donations are used. This strategy also provides for continued involvement in philanthropic efforts after passing.
• Legacy Planning: Incorporate philanthropy into your estate plan to ensure the continuation of your philanthropic legacy by including charitable giving in your will or trust. This strategy also allows for a more tax-efficient transfer of wealth to future generations.

Philanthropy transcends generosity; it is a strategic endeavor that demands meticulous planning and a discerning approach.

Carmel Capital Partners has been helping charitable families and businesses navigate the intersection of philanthropy and tax planning, ensuring that each dollar given not only impacts the causes dear to their hearts, but also positions them advantageously in the realm of wealth preservation.

Please let us know if we can provide guidance or solutions tailored to your unique philanthropic aspirations.

Sources:

• Tax-related information sourced from the Internal Revenue Service. IRS.gov, 2023.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investment advisory services are offered through Carmel Capital Partners, an SEC Registered Investment Advisor.