Here are two fundamental principles for tax wise giving... they could save you lots of money!
1. DO NOT GIVE MONEY FROM YOUR CHECKING ACCOUNT!
Many donors just write a check when they want to give to a charity. By doing this, they really do not get any tax advantage given that the tax deduction for the gift is basically wiped out by the income taxes due. If instead of giving money from a checking account, donors gave shares of a stock that had greatly appreciated in value, they will save the capital gains tax. However, it is cumbersome to give away stocks. Check below for solutions to implement this principle.
2. TAKE THE TAX DEDUCTION WHEN IT IS MOST ADVANTAGEOUS TO YOU... NOT WHEN YOU GIVE TO A CHARITY!
Many donors' income can vary from year to year because they are entrepreneurs or professionals. In this case, it might be more advantageous for them to give a lot one year but much less the next year. However, a donor may wish to give out about the same amount every year to charity. Check below for solutions to implement this principle.
There are several vehicles to implement these tax-wise-giving principles:
1. CREATE A PRIVATE FOUNDATION
PROS:
- Allows to harvest the savings outlined in the two basic principles outlined above
- Can exist after the death of the donor
- The donor, or people chosen by the donor, can be paid employees or paid advisors of the foundation
- Can give to individuals (e.g., scholarships)
CONS:
- No privacy: The total assets of the foundation as well as donations are public record (IRS Form 990)
- Costly to set up and run: Not cost effective for foundations with less than $25 Million in assets
- Must give out at least 5% of assets annually (IRS requirement)
- Must pay a 2% excise tax annually on net investment income
A related possibility is to create a Supporting Foundation, which avoids some of the problems associated with running a foundation and can be cost effective with much lower thresholds. Consult an attorney specializing in foundations as well as a tax advisor for advice on this.
2. GIVE THROUGH A DONOR-ADVISED FUND FOR CHARITABLE GIVING
PROS:
- Allows to harvest the savings outlined in the two basic principles above
- Can exist after the death of the donor
- Privacy: The total assets in your fund as well as the donations are not public record
- Donor can chose to give to charities anonymously
- Inexpensive to run and no paperwork
- No requirement to distribute a portion of assets annually
- No excise tax due
CONS:
- The donor, or people chosen by the donor, cannot be paid employees or paid advisors of the fund
- Cannot give to individuals, only to non-profits
- Most Donor-Advised Funds allow only donations to US-based charities---check with your fund administrator
- Does not provide detailed philanthropic research for donating to equality for LGBTQ Americans
Most major brokers offer this service. Donor-advised funds should be considered by every major donor.
3. GIVE THROUGH A COMMUNITY FOUNDATION
PROS:
- Allows to harvest the savings outlined in the two basic principles above
- Can exist after the death of the donor
- Privacy: The total assets as well as the donations are not usually public record---check with the particular foundation
- Donor can chose to give to charities anonymously
- Inexpensive to run and no paperwork
- Can give to individuals (e.g., scholarships)
- Provides philanthropic research of interest to donors committed to LGBTQ equality and related issues
- No requirement to distribute a portion of assets annually
- No excise tax due
- In most cases, donors can establish a Donor-Advised Fund for Charitable Giving within a community foundation
CONS:
- The donor, or people chosen by the donor, cannot be paid employees or paid advisors of the foundation
- Most Donor-Advised Funds in Community Foundations allow only donations to US-based charities---check with your community foundation
NOTE: All contributions given to a Private Foundation or a Donor Advised Fund or a Community Foundation are irrevocable gifts. Donors must consult an attorney and an accountant specializing in
charitable giving to determine the best course of action for them. The information provided here is general and from a donor's perspective; it is not intended to be legal or accounting advice. There are several other charitable vehicles that the donor needs to discussed with a qualified advisor.
DEDUCTING POLITICAL GIVING
Giving to candidates for elected office, political parties, political committees, political organizations or related political causes is not tax deductible and cannot be done using the vehicles described above.
Even without a deduction, donors interested in achieving LGBT legal equality know the
importance of giving both to political causes and nonprofits. Both are
needed to achieve equality.
Even if donations are not tax deductible, in certain circumstances donors can avoid capital gain taxes by giving appreciated stock. For very large donations, check with an attorney specializing on the subject. Also check this article about giving appreciated stock to political causes without paying capital gain taxes.
Check also: Giving Tips | Giving Center | Strategic Giving for Equality | Philanthropy Books
Exclusively for Registered Members: Strategies for Each Equality Goal | Giving to Reach Equality Goals
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