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Structured Giving

4739523391_2b8e1db2d2_bThere comes a time when your responsible spending and investing habits grow your net worth to a level you will never spend in a lifetime. As the years pass you discover charitable causes you want to help. Giving is something that brings meaning to our lives. By making a difference, our hard work and intelligent planning creates the real reason we choose the life we lived.

The hard part of charitable giving is the number of worthy causes to choose from. Another issue is maximizing the value of the gift.  There are three issues connected to charitable giving: choosing the charitable organization, determining the level of gifting, and using the tax code to maximize the value of your gift.

Finding a Honest Organization Worthy of a Contribution

The cold call asking for a donation is automatically off the list. I don’t care which organization is doing the asking; if you call me unsolicited the answer is ‘no’. This includes the police department. It is also unlikely I will give much consideration to a request from unsolicited mail. Unsolicited requests generally are not issues I care as much about and the risk the organization is either a fraud or does not support my values is high.

The church or synagogue is a logical choice for a large number of people. You need to determine if a religious organization is appropriate in your gifting plan. Many non-profit organizations are affiliated with religions, like hospitals or Salvation Army. You need to decide if you wish to support a cause that is also part of a religion. This is important to some people, others not.

I recommend supporting a smaller number of organizations and focusing your charitable gifting. I always like to support a cause where my contribution has the ability to move the needle. A $25 gift to 206 organizations only invites a mailbox full of more requests and unending unsolicited phone calls. I want to help, not be annoyed. If it irritates me I will not contribute again.

A previous post outlines the organizations I personally support and why.

Gifting for Maximum Results

Once you decide which organizations you will support you now need to determine the level of support. I cannot tell you what you should or should not give; it is a personal choice. What I want to share is information on maximizing your gifting efforts.

Supporting a charity is more than writing a check. Individuals and businesses have multiple ways to contribute and maximize results. Some methods of support overlap.

Individuals: Monetary charitable support is generally deducted on Schedule A if you itemize. (I will only reference U.S. taxes.) Once your net worth increases the chances are you don’t itemize anymore. Without a large state tax or mortgage interest, itemizing gives way to the standard deduction. There are still ways to hyper-charge your charitable contributions.

Money is not the only thing charities need. They need people willing to help. Sharing your expertise is a powerful contribution that requires no financial commitment. A tax pro like me can work in the Volunteer Income Tax Assistance (VITA) program. My love of tax work means I probably will work part-time helping people with their taxes at no cost after I sell my practice. I kill two birds with one stone this way: I help elderly and poor people prepare an accurate return and train preparers so they are able to enter the tax professional workforce.

Habitat for Humanity always needs another set of hands to build homes. Maybe you love animals and enjoy helping clean up after a dog show or helping set up for the dog show. Artists can paint signs, technical minded people can set up websites, and disabled people can always use a ride to doctor appointments or the grocery store.

Whereas, you can donate as much of your time as you want, there is no tax deduction for the time spent helping a qualified charity. You can claim on Schedule A your donation of cash or property at value to a qualified charity up to 50% of your AGI, except for certain private foundations, fraternal societies, non-profit cemeteries, and veterans’ organizations which  can only be claimed up to 30% of AGI. Appreciated property donations are limited to 30% of AGI for 50% limit charities and 20% of AGI for 30% charities. You can carry the unused portion of the charitable donation forward for five years.

If you normally do not itemize, you can structure your giving to increase tax savings by focusing charitable donations to a single tax year. Clumping your donations into a single year can help you reach the itemizing level. The tax savings provide additional cash to donate. Extraordinary items on Schedule A causing you to itemize is a good time to also contribute to causes that interest you. A small amount of planning can lead to significant tax savings.

Businesses: Regular corporations are limited to 10% of taxable income for deductible charitable contributions. S-corps pass through charity contributions to the owners where the individual limits apply. There is a way around the limits for businesses.

The Adopt-a-Highway program is a great way to give back to your local community. Donating goods and services can reach contribution limits quickly, so an alternative method needs to be used to get a deduction. For small business owners who don’t itemize on their personal return, the business is a powerful tool to help the community and get a full deduction for the contribution.

In addition to what can be donated by individuals, a business can structure donations for maximum results while providing a valuable service/resource to their community. I periodically donate to CommunityFest. CommunityFest is a local event around the Independence Day holiday supported by local businesses. Contributions to the event/organization are not considered charitable donations for a business; they are a promotional or advertising expense. The odds I will ever get a new client because a small sign says I donated $1,000 are small. Regular clients will feel good when they see their accountant supporting the community so there is promotional value to the company.

There are multiple similar types of events in every community. The local police and fire departments have programs to help children. Unless I am certain it really is a police sponsored event I take a pass. I donate to Children’s Hospital through a charity golf event. I get a nice mention. Again, it is doubtful I will gain new clients unless I swing a club and do business on the links. It is still an advertising expense for the business, regardless that much of the money will end up at Children’s Hospital. Getting your business name in front of the public is an advertizing expense even if it helps a charity. No need to itemize or file Schedule A for the deduction; the business takes the deduction before it is ever added to your personal income.

Parting Words

Charity work has always been a significant part of my financial and business life. Some years my Schedule A looks like I am a saint, other years not so much. I still contribute to charities in the Schedule A slack years using other, more productive methods of giving.

Once you reach a certain level of wealth it no longer matters how much more you have. Eventually enough is enough. Having more for the sake of having more seems insane to me. I spend time each year planning my charitable donations. I structure giving to maximize tax savings so I have more to contribute to the charities I like. Please join me.


Friday 28th of June 2019

So, regarding charitable deduction via S-Corp - is it doable? Say, I am married filing jointly and we do not reach 24.4K annual standard deduction on tithe and charity on personal taxes. Can I use S-Corp to deduct as business advertising/promotional expense?

Keith Taxguy

Friday 28th of June 2019

If you follow the rules.

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