Originally published in Orlando Business Journal: Three steps for optimizing your charitable contributions

Many successful professionals, business owners and executives often ask for advice about charitable giving.

This usually leads to a conversation about how their donations can have the most charitable impact while simultaneously taking advantage of all available tax benefits. These are important questions for Floridians, because we donated more than $11 billion to charity in 2012, according to the most recent data from The Chronicle of Philanthropy.

The following three steps can help you do the most good for your favorite causes and your taxes at the same time:

  1. Organize your charitable giving through a donor advised fund: A donor-advised fund (DAF) is a personal charitable giving account that provides more tax benefits and additional flexibility when compared to writing checks to your favorite charities every year. Once you make a contribution to a DAF, it irrevocably is committed to charity, but you get to recommend the charities in the future, with no time limit. DAFs are available through local community foundations and national providers, such as Schwab Charitable. Setting one up is simple: donors make an opening contribution, receive a tax deduction for that year and then recommend grants to charities over time. Funds waiting in the account can be invested to potentially increase the amount you ultimately have available for charity.
  2. Donate appreciated securities for maximum tax savings: Donating assets that have appreciated for at least a year — such as publicly traded stock and real estate — can significantly increase your tax savings, leaving you with more money to give to charity. Let’s say you are considering writing a $50,000 check to charity. Then, you notice you have a security worth $50,000 that you bought for $20,000 more than a year ago. If you decide to sell that security, you would have a long-term capital gain of $30,000. If you are not in the two lowest tax brackets, you would owe capital gains tax in the range of $4,500 to $7,140, depending on your individual situation. Most people pay the tax out of the sale proceeds, so they would be left with an amount between $42,860 and $45,500 to donate to charity and take as a deduction on their income taxes. Instead, you could donate that security to a charity, which could be your DAF. In this case, the charity receives the full $50,000 value and neither they nor you pay capital gains tax. As an added benefit, you would receive a deduction for the full $50,000 “fair market value” (subject to phase-outs of itemized deductions).
  3. Bunch itemized deductions in some years: While some of our clients still have mortgages on first or second homes, most do not. Without a large deduction for interest expense on a home mortgage, the remaining itemized deductions are usually real property taxes and charitable contributions. Clients mostly can control when they pay those items, making it possible to “bunch” itemized deductions every other year, i.e., double-up one year and skip the next. In the skipped year, they can use the standard deduction, which is $12,700 for a married couple in 2017. If bunching is done perfectly, this technique could save over $5,000 in income tax every other year for a taxpayer in the highest marginal tax bracket.

Whether you choose a DAF or another giving vehicle, taking the time to plan the financial side of your charitable support can result in greater tax savings for your family and a greater impact on your favorite causes.

Mike Davis is the CEO and founder of Resource Consulting Group. He can be reached at (407) 422-0252.​