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Nick R. Fuller is a certified public accountant and certified financial planner with Spokane-based Quantum Financial Planning Inc., which serves business owners and families throughout the Pacific Northwest.
While "Money doesn't buy happiness" is an adage that holds true for most folks, it's difficult to argue against the impact that money can have both on individual lives and greater communities.
The correlation between prosocial spending—expending capital for the benefit of others—and happiness is well documented. Additionally, though paying taxes can be considered righteous and patriotic, philanthropic gifts are often used more efficiently than government funds to address societal needs.
Although charitable giving is an endeavor worth undertaking in its own right, doing so intentionally can help maximize the value and impact of lifetime gifts while lowering one's total tax bill. One does not need to work hard to find worthy causes to support, though many causes, such as food and housing insecurity, may seem like problems too big to solve where one household’s donation feels like a drop in the bucket. An intentional gifting strategy with a local focus can ensure donors minimize their tax burdens, maximize the value of their gifts, and through the power of proximity, more closely experience the impact those gifts have on their community.
There are a number of tax-advantaged gifting strategies available for the charitably inclined to maximize the impact of their donations. For those over 70 1/2 years old, qualified charitable distributions offer a chance to divert funds to charity that would otherwise be considered taxable income, avoiding income taxes in the process.
Others may consider utilizing a donor-advised fund, one of the most popular and fast-growing vehicles for charitable giving, primarily due to the flexibility offered to the donor. Because DAFs are irrevocable, a person who funds a DAF is eligible for a tax deduction immediately, even before deciding which organizations ultimately will receive the funds or when the funds will be sent. This can present several tax planning opportunities.
Charitable gifts are only deductible if a taxpayer itemizes deductions on Schedule A, and the 2017 Tax Cuts and Jobs Act significantly lowered the percentage of taxpayers that fit this category. However, a little planning can go a long way. If, for example, a single taxpayer budgets $10,000 per year for charitable gifting, but does not surpass the standard deduction when itemizing in a typical year, consolidating gifts into fewer tax years, such as gifting $20,000 every other year or $30,000 every third year, can result in the same dollar figure being donated while allowing the taxpayer to benefit from itemizing deductions in the years gifts are made, potentially lowering the payer's lifetime tax bill significantly.
Another strategy that becomes easier with a DAF and can have significant tax advantages is gifting appreciated securities. When a donor holds stock, for example, that has appreciated in value since it was originally acquired, giving the securities directly, rather than selling the stock and donating the resulting proceeds, allows the donor to avoid capital gains taxes, resulting in a larger net gift to the recipient. In addition, the donor gets to include as an itemized deduction the full fair market value of the securities at the time the gift occurred, as opposed to being limited to deducting the donor's cost basis.
Having a DAF established makes this administratively simpler as many charities do not have well-established processes for accepting noncash gifts. Less liquid investments, such as real estate, privately held businesses, and collectibles also can be donated to a DAF—or directly to a charity willing to accept them— while receiving similar tax benefits, though with additional complications.
The Inland Northwest has no shortage of needs worth addressing. Priority Spokane, an organization working "to create a vibrant future for Spokane County by implementing community-defined goals," last year identified mental health, early learning, environmental improvements, and alternative housing as priorities.
Anyone could easily draft another list of priorities that seems more pertinent to them. Fortunately, Spokane has many organizations working to address local needs, such as 2nd Harvest, Union Gospel Mission, Joya, Innovia Foundation, Catholic Charities of Eastern Washington, Nuestras Raíces, and plenty of others. A donor may also deduct gifts to local religious institutions, colleges, and foundations that support professional organizations.
Nick R. Fuller is a certified public accountant and certified financial planner with Spokane-based Quantum Financial Planning Inc., which serves business owners and families throughout the Pacific Northwest.