February 2024 Professional Advisor News

The year is in full swing. Professional advisors are asking clients to start gathering tax documents and related paperwork for 2023 tax returns and 2024 planning. Now is a good time to review a few basic tax principles related to charitable giving. Here are three questions that are top of mind for many professional advisors, along with answers that can help you serve your clients.

How important is it to high-net-worth clients to get a tax deduction for gifts to charity?
Among clients who own investments of $5 million or more, 91% of those surveyed reported that charitable giving is a component of their estate and financial plans. In another study, most affluent investors cited reasons for giving well beyond the possibility of a tax deduction and would not automatically reduce their giving if the charitable income tax deduction went away. What this means for your practice is that it is important to be aware of your clients’ non-tax motivations for giving, such as family traditions, personal experiences, compassion for particular causes, and involvement with specific nonprofit organizations. This also means it is critical to talk about charitable giving with all of your clients because it is likely that most consider it to be important.

Why do clients so often default to giving cash?
Many clients simply are not aware of the tax benefits of giving highly-appreciated assets to a donor-advised or other type of fund at GiveWell Community Foundation. Even if they are aware, they forget or are in a hurry and end up writing checks and making donations with their credit cards. It is really important for advisors to remind clients about the benefits of donating non-cash assets such as highly-appreciated stock, or even complex assets (e.g., closely held business interests and real estate). When clients give highly-appreciated assets in lieu of cash, they often can reduce – significantly – capital gains tax exposure, and they can calculate the deduction based on the full fair market value of the gifted assets.

What are the basic deductibility rules for gifts to nonprofit organizations?
It’s important to know that the deductibility rules are different for your clients’ gifts to a public charity (including a fund at the Community Foundation) on one hand, and their gifts to a private foundation on the other hand. Clients’ gifts to 501(c)(3) public charities are deductible up to 50% of AGI, versus 30% for gifts to private foundations. In addition, gifts to public charities of non-marketable assets such as real estate and closely-held stock typically are deductible at fair market value, while the same assets given to a private foundation are deductible at the client’s cost basis. This difference can be enormous in terms of dollars, so make sure to make your clients aware of this if they are planning major gifts to nonprofit organizations.

So, what is the first step? Reach out to the professional staff at GiveWell Community Foundation! Make it a practice to discuss charitable giving with your clients. From that moment on, whatever your clients’ charitable priorities, consider the Community Foundation to be your behind-the-scenes back office and support department to handle all of your clients’ charitable giving needs.

Your clients who own highly-appreciated works of art certainly can consider making gifts of this property to a nonprofit organization. Use caution, though, when helping clients structure gifts of artwork. To be eligible for a charitable deduction at fair market value, the nonprofit recipient’s use of the donated artwork must meet certain qualifications, in that the artwork has to be used for its charitable purpose (think art museums). On top of that, be wary of techniques that recently have come under severe IRS scrutiny and have been determined to circumvent the rules for tax deductions.

Your charitably-minded clients certainly have no shortage of options for their philanthropic dollars. Many clients use their donor-advised fund at GiveWell Community Foundation to support favorite nonprofit organizations across the country, including alma maters, organizations in the communities where they have lived in the past or have a second home, or nonprofit organizations in communities where their grown children are now living.

Many clients, though, are also deeply committed to our local community where they are living now, where they have raised their children, and where they have built a business and life. That is why it is helpful to let your clients know that they can reach out to the Community Foundation when they want to make sure their dollars are making the biggest difference possible, right here in our own backyard. Indeed, local giving satisfies many clients’ commitment to “make a difference where you live.” The unfortunate and seemingly constant flow of crises and natural disasters, coupled with decreasing state and federal funding to local nonprofits, means that philanthropy is playing an increasingly vital role in our community.

GiveWell Community Foundation, through its wide offering of fund types available to your clients (including endowment funds to support our community in perpetuity), can help your clients achieve their goals for local support, whether that takes the form of disaster recovery, supporting families in need, funding critical workforce development, or paving the way for community development initiatives.

Our Community Foundation professional staff is always happy to provide insight into the challenges facing our community and which nonprofit organizations are delivering services to alleviate those needs so that your clients can provide immediate support through their donor-advised funds.

In addition, the Community Foundation offers funds that may be a good fit for clients who want to improve lives, right here in this community, for generations to come, whatever challenges our community may face at any given point in time. A field of interest or designated fund may be particularly compelling for your clients who are 70 ½ or older. These clients may be eligible to make annual distributions up to $105,000 per spouse from their IRAs directly to a field of interest or designated fund at the Community Foundation. This transfer is called a “Qualified Charitable Distribution,” or “QCD.” Not only do QCD transfers count toward satisfying Required Minimum Distributions, but your client also avoids the income tax on those funds. Furthermore, those assets are no longer part of the client’s estate upon death, so the client can avoid estate taxes, too.

Simply reach out to the professional staff at GiveWell Community for more information on how your clients can support both current and future local needs, and also meet their own financial, tax, and generational legacy goals.