By Philip “Rusty” Ross, CPA, Partner and Sr. Wealth Advisor
In 2023, the book “The Good Life: Lessons from the World’s Longest Scientific Study of Happiness” was released reviewing insights from Harvard’s happiness study that followed participants for over 80 years. The study found that “the happiest and most satisfied adults [in midlife] were those who managed to turn the question ‘What can I do for myself?’ into ‘What can I do for the world beyond me?’”1b One way of doing this is to find causes that you would like to support through charitable donations. Charitable giving can also be a powerful tool for tax planning. Below, we examine some of Exencial’s charitable giving strategies and discuss the potential benefits.
With anticipated tax law changes in 2026, including potential rate increases2, it’s important to develop a plan to properly leverage charitable contributions over the next few years. To optimize benefits, we sometimes suggest clients consider clustering donations. By consolidating multiple years' worth of contributions into one year, clients can surpass the standard deduction, leading to more significant tax advantages. The key to this approach is contributing highly appreciated stock to a donor-advised fund. By doing so, a client can take advantage of larger itemized deductions in that specific year and benefit from the increased standard deduction in the following years. This strategy provides a dual benefit of a deduction and avoids capital gains on the donated position.
For clients aged 70.5 and older, leveraging Qualified Charitable Distributions (QCDs) from their IRAs can be an excellent potential tax-saving strategy. QCDs allow direct transfers from an IRA to a qualified charity, counting toward the required minimum distribution (RMD) and excluding the income from their tax return.3 While it doesn't offer the capital gains benefits of contributing appreciated stock, it efficiently reduces taxable income while supporting charitable causes.
Another method of charitable giving we suggest is donating stock directly to charities, especially for significant contributions. Most charitable organizations have mechanisms to accept and sell stocks, providing the advantage of both a charitable deduction and capital gains avoidance for the donor.
Another component of the Harvard study found that “People who are more connected to family, friends and to community, are happier and physically healthier than people who are less well connected”1a. A method to further build a close relationship with grandchildren is to get them involved in charitable giving. At Exencial, we recommend grandparents utilize donor-advised funds to introduce their grandchildren to charitable giving through an initiative where grandchildren research a charity of their choice and present it to the grandparents explaining why they should donate. This not only helps instill philanthropic values to the grandchildren but also focuses on critical skill-building such as research and public speaking.
Before donating to an organization, it’s crucial to ensure that you're choosing a reputable organization that gives your charitable contributions to the intended recipients. Websites like GuideStar and CharityWatch can assist in evaluating charities, assessing how much of the donations directly contribute to the cause. Additionally, if you work for a corporation, consider exploring any corporate matching programs offered by your company to amplify the impact of your contributions.
Charitable giving is a powerful tool for not only making a difference in the world, for yourself, but also for strategic financial planning. At Exencial, we help optimize your philanthropic impact and create a legacy of giving that resonates for generations to come. If you have any questions, please contact your Exencial Wealth Advisor.
- “The Good Life: Lessons from the World’s Longest Scientific Study of Happiness” First Edition (1/23) Robert Waldinger, MD and Marc Schulz, PhD
- Chapter 1 page 21
- Chapter 3 page 75
- Penn Wharton, University of Pennsylvania Budget Model (6/14/23) — The Tax Cuts for Working Families Act: Estimated budgetary and distributional effects
- Investopedia (4/6/23) — Qualified Charitable Distribution (QCD): What it is, how it lowers your taxes
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