By: Paige Voorhees, Urban Compassion Project board secretary

Supporting a charitable cause not only benefits those in need but can also provide tax advantages for donors. Whether you’re passionate about bringing health, welfare, and empowerment to those who are often overlooked by supporting Urban Compassion Project, or you’re passionate about any other cause, there are several ways to maximize your impact while optimizing your tax benefits.

1. Direct Donations and Deductions: One of the simplest ways to support your favorite charity is by making a direct cash donation to the charity. Contributions made to qualified charitable organizations are generally tax-deductible if you itemize your deductions. Keep records of your donations, including receipts or acknowledgment letters from the charity, to substantiate your deductions when filing your taxes.

2. Appreciated Securities: Donating appreciated stocks, bonds, or mutual fund shares directly to a charity can be more tax-efficient than donating cash. By transferring appreciated assets that you’ve held for more than a year, you can avoid paying capital gains tax on the appreciation and still claim a charitable deduction for the full fair market value of the asset at the time of donation.

3. Donor-Advised Funds: Donor-advised funds, or “DAFs,” offer a flexible and tax-efficient way to manage charitable giving. By contributing to a DAF, you can take an immediate tax deduction while recommending grants to your chosen charities over time. This allows you to maximize your deduction in high-income years and distribute grants strategically according to your philanthropic goals.  You can contribute both cash and marketable securities to DAFs.

4. Qualified Charitable Distributions: For individuals aged 70½ or older who have traditional IRAs, making qualified charitable distributions, or “QCDs,” can be advantageous. QCDs allow you to donate up to $100,000 annually directly from your IRA to qualified charities without counting the distribution as taxable income. This can help lower your adjusted gross income (AGI) and potentially reduce taxes on your Social Security benefits.

5. Estate Planning and Bequests: Including charitable bequests in your estate plan ensures that your philanthropic legacy continues beyond your lifetime. Bequests can be specified in your will or trust, designating a portion of your estate or specific assets to go to one or more charitable organizations. Such donations are generally exempt from state and federal estate taxes and can reduce the overall taxable value of your estate.  (Note that the state of California does not have a state estate tax.)

In conclusion, supporting your favorite charity in a tax-efficient manner involves strategic planning and leveraging available tax incentives. Whether through direct donations, donor-advised funds, appreciated securities, qualified charitable distributions, or estate planning, there are various avenues to maximize your charitable impact while optimizing your tax benefits. Consult with a financial advisor, estate planning attorney, or tax professional to tailor your giving strategy to your financial situation and philanthropic goals. By doing so, you can make a meaningful difference in the causes you care about while benefiting from potential tax savings. Together, we can contribute to building a better, more compassionate world.