The benefits of charitable contributions: A guide for financial professionals

11/27/2023 — Key takeaways:

• Philanthropy is not only a noble act; it can also be a strategic move that complements your clients’ financial plans.
• If charitable contributions are itemized, your clients can significantly lower their taxable income.

As a financial professional, you understand the importance of creating a comprehensive financial plan for your clients. One aspect that can be overlooked is philanthropy and charitable giving. As we enter the holiday season and days like Giving Tuesday arrive, it’s vital to consider the impact of end-of-year tax planning on your clients’ philanthropic objectives.

What are charitable contributions?

Charitable contributions are donations made to qualified tax-exempt organizations, such as charities and non-profit entities. These contributions can take the form of cash, assets, or property and can offer significant financial advantages for your clients. Philanthropy allows individuals to make a positive impact on causes they care about and contribute to the betterment of society as a whole. This can bring a sense of fulfillment and purpose, which can have a positive impact on their overall well-being.

The role of philanthropy in financial planning

Philanthropy is not only a noble act; it’s a strategic move that can complement your clients’ financial plan. Charitable giving can lead to potential tax benefits. According to the Internal Revenue Service (IRS), if charitable contributions are itemized, your clients can significantly lower their taxable income, which can be particularly advantageous for clients in the higher tax brackets.

Apart from financial benefits, philanthropy can enhance your clients’ lives in many ways. Studies suggest that people who give to charity often experience heightened happiness and life satisfaction.

Giving back and maximizing benefits

There are various ways your clients can give back and make the most of their charitable contributions. They can donate cash, stocks or other securities, or even set up charitable trusts. Each method has its own tax benefits and considerations, so it’s important to discuss these options with your clients and determine the most suitable approach for their financial goals. They may also want to consult a tax professional.

Appreciated securities

One popular method of giving intended to maximize tax benefits is donating appreciated securities. When securities that have increased in value are donated directly to a charity, your clients can potentially eliminate capital gains tax and receive a charitable tax deduction for the full market value of the securities .

Donor-advised funds

Another strategy is considering a donor-advised fund (DAF). Generally, these accounts will be maintained and operated by a 501 (c)(3) organization, and the account is funded by individual donors. This philanthropic vehicle allows your clients to make a charitable contribution, receive an immediate tax benefit, and recommend grants from the fund over time.

Conclusion

Incorporating charitable giving into your clients’ financial plan is not just about the potential tax benefits. It’s about giving them the power to achieve their financial goals while making a positive impact on the world. By guiding your clients in making strategic charitable contributions, you can help them balance their personal financial ambitions with their desire to contribute to a greater cause—a win-win situation that makes both financial and moral sense.

Federal income tax laws are complex and subject to change. The information is based on current interpretations of the law and is not guaranteed. Nationwide and its representatives do not give legal or tax advice. Please consult an attorney or tax advisor for answers to specific questions.