If you are approaching a stage in your life where you would like to make charitable contributions that will positively impact your community or some specific causes that are meaningful to you and your family, The Perrini Cain Group can help you sort through options and help identify the most suitable ways to make those contributions. While the primary goal in making a charitable gift is to support a worthy cause, there are also tax and financial planning benefits for the donor that should be considered.

We can help you understand more about the potential benefits of giving to charity in the following ways:

Outright gifts of cash: Cash gifts must be immediately useable by the charity to qualify for a charitable deduction of up to 60% of your Adjusted Gross Income (AGI) on your Federal 1040 tax return. For calendar years 2020 and 2021 only, the CARES Act allows for 100% of cash donations to an “end charity” (not DAF, Private Foundation or Community Organization) to be deducted, up from the 60% standard. The CARES Act also allows for a $300 above the line deduction for a cash contribution of the same type for those who are unable to itemize their deductions.

Gifts of appreciated stock: Instead of making cash gifts, you can avoid paying capital gains tax on the appreciated value of your assets and receive a tax deduction of up to 30% of your Federal AGI by making a gift of appreciated stock directly to your favorite charity.

Gifts of ownership of an existing insurance policy: Many of us have paid-up insurance that we do not need for current risks or future family inheritance. You can transfer the ownership and beneficiary designation to a charity. You will receive a charitable deduction for the value of the policy as determined by IRS regulations and your insurance company (up to 50% of Federal AGI).

Purchasing life insurance at low rates while young, payable to charity: Younger persons may wish to get more charitable bang for their buck by purchasing insurance for a gifting campaign to a charity that will pay a large death benefit. A charity is named as owner and beneficiary of the policy. Premiums paid by the donor are tax deductible if the policy is owned by the charity.

Pooled income funds: A pooled fund is a vehicle that allows you to make smaller gifts to charities and receive an annual return of income during your lifetime based on the earnings in the fund each year. The charity receives the remainder at your death. You get a tax deduction for the remainder gift as projected by formulas that can be calculated when you make your gift. Both charitable institutions and some private foundations run by brokerage firms sponsor charitable pooled funds.

Charitable gift annuity or deferred annuity: Some charities will offer you an outright annuity for a gift you make to them. The charity will guarantee a return of income for your life or a period of years. You will receive a tax deduction for the calculated value of the remainder at the time you make the gift. In some cases if you fund the annuity with appreciated assets, you will be subject to capital gains tax on those assets.

Charitable remainder trust (CRTs): The CRT is used by many people who intend to make gifts (generally $250,000 or more) to charity, but wish to retain a stream of income for their lifetime or a designated period of years. The CRT is often funded with appreciated property so that when the property is sold the charitable trust pays no capital gains and all of the sales proceeds can be reinvested. You state in your document what annual return you wish to receive from the trust. (This percentage must pass guideline tests that are calculated when you make the gift.)

Donor-advised funds: For individuals and families with strong charitable inclinations, donor-advised funds may provide many of the same grant-making and tax benefits of a private foundation, but without the operating expense and administrative burden of creating and running a private foundation.

An immediate income tax deduction is allowed for contributions to a donor advised fund, and you may choose the charity or multiple charities to benefit from your contribution, as well as determine when the grants will be given. The tax and practical advantages of a donor-advised fund may provide a flexible and rewarding alternative to a private foundation for many charitably inclined individuals and families.

Click HERE for more information on Donor-Advised Funds.

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While Baird does not offer tax or legal advice, our Financial Advisors regularly work with clients’ attorneys and tax professionals to help ensure that all phases of wealth management are addressed.