Charitable giving is essentially the act of giving money, time, or goods through a worthy cause. It can be an attractive way to write off income and gain tax benefits by way of philanthropic values. While there are countless ways of giving charitably, there are some key charitable giving strategies that allow individuals and companies to express themselves philanthropically while maximizing tax benefits.
For businesses, charitable giving is an important way to establish an attractive business culture within the community. Giving builds trust in consumers and attracts talent. If philanthropy is embedded into the purpose of your business, it can be fundamental in tackling social issues that may arise. In the long-term, philanthropy can improve profitability within a company and build a legacy.
A private foundation is a non-governmental, non-profit organization. It can also be a charitable trust. Its principal fund usually comes from a singular source such as an individual, family, or business. Funds are managed by their trustees or directors. Private foundations do not receive funds from the public.
A pooled income fund can provide numerous tax benefits for the contributors. It is a kind of charitable trust which is established and maintained by a non-profit organization. Funds come from one or more individuals, families, or charities. For this mutual fund, gifts and contributions are pooled together and invested. Income is distributed to the participants and beneficiaries based on their shares of the fund.
A donor-advised fund or DAF is a vehicle for charitable giving which is established at a public charity. Donors can make charitable contributions and receive immediate tax deductions. They can then recommend grants from the fund over time. One of the benefits of a DAF is that it is generally a significantly lower cost than a private foundation.
A charitable lead trust or CLT provides income payments to one or more charitable organizations for a specified period of time. After the fixed number of years or the life of one or more individuals, assets of this trust are then distributed to either the grantor or one or multiple named beneficiaries.
A charitable remainder trust or CRT is a tax-exempt irrevocable trust. CRTs are designed to reduce the amount of taxable income of an individual or individuals by dispersing income to beneficiaries of the trust for a specific period of time. The remainder of the trust is then donated to charity.
Charitable gift annuities or CGAs are planned giving arrangements between a non-profit organization and a donor. The donor receives payments for the duration of their life based on the value of the assets transferred to the organization. After the donor passes, assets are kept by the organization.
Qualified charitable distributions are generally from an individual retirement account (IRA) owned by an individual aged 70 ½ or older. Distributions are paid directly from the IRA to the qualified charity.