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A Tax-Smart Guide to Charitable Giving

A Tax-Smart Guide to Charitable Giving

November 09, 2022

According to Giving USA, Americans donated an estimated $326.87 billion to charity in 2021.1

Many Americans make charitable contributions for a multitude of reasons and the knowledge that you are helping others is hugely empowering. Not only is it a wonderful way to show your children the importance of generosity, but there are also potential tax benefits that can come from giving. Let’s not forget it is a major mood booster! When giving to charitable organizations it is important to collaborate with your financial advisor and CPA to plan the perfect giving strategy for your unique situation.

There are a few things you must do to qualify for an income tax deduction on charitable gifts:

  • Itemize deductions on your income tax return
  • Meet the gift documentation and substantiation requirements
  • Make the gift to a qualified charitable organization

There are tax-smart strategies you can use to increase your giving power. These giving vehicles can maximize both the gift and the potential tax benefit. Although tax advantages are not the main drivers for most people’s philanthropy, it is nevertheless a valuable benefit that shouldn’t be overlooked.

One way people like to approach charitable giving is by opening a charitable remainder trust. Setting up a charitable remainder trust to leave property to a charitable organization can reduce your estate taxes similarly to gifting to a charitable organization. When you place the property in a charitable remainder trust, you or your beneficiary receives a specified amount of money for a selected period. Once that time has elapsed, what is left in the trust goes to the charitable organization.

Another way to save on taxes is to use a donor-advised fund for your charitable giving. This involves establishing an account and funding it with cash, stocks, or even a private business interest. You can get a tax deduction while the funds you donate can continue to grow and you get to determine what qualified charities you want to support. The advantage of donating appreciated assets is that you get to take a deduction for the fair market value of the appreciated asset you grant to the account while avoiding the capital gains tax that would be due if you sold the asset and donated the proceeds directly. Keep in mind that when you contribute assets to a donor-advised fund you are making an irrevocable commitment that the funds will be used for charitable giving, so you want to make sure of your intent. 

There are many strategies when it comes to tax-smart charitable giving. Each has its pros and cons, and they are all completely up to the individual. In this season of giving, I encourage you to reach out to our team so we can evaluate your unique financial situation and what your goals are, so we can select the right tax-smart charitable giving strategy for you. At Paxel Financial, we strive to create a legacy for financial success!


  1., June 21, 2022