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The Giving Back to the Community Series examines the benefits of charitable giving from the donor and their family’s perspective and sheds light on three common strategies. The series will include five separate articles dealing with:
Installment One: What charitable giving can mean to you and your family
Installment Two: How A Private Family Foundation Works
Installment Three: What is a Donor-Advised Fund
Installment Four: The Use of a Charitable Remainder Trust
Installment Five: Compares the three methods for you to consider when deciding on how to give back to the community
Now, more than ever, we need all of us to expand our charitable giving, and Dunham hopes this series helps.
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Many of us have dreamed of making the world a better place. We have visions of a world with equality, freedom, and healthcare available to all - a world where poverty, disease, hunger, and violence are things of the past.
Indeed, it is not easy to imagine one person or organization who can accomplish all of this.
However, your philanthropic activities, combined with others supporting the greater good, can help organizations improve the world we live in, one community and one project at a time.
As a young man, I wanted to save the world. I realized that the task was well beyond my capacity and my resources. However, I understood by giving back to the community in my tiny part of our vast planet, I could make an impact. Knowing there were others around the world trying to do the same, I recognized that combined, our charitable giving was making a significant difference.
And Now, the Selfish Part of Charitable Giving
There is a saying that it is better to give than to receive.
One of the most remarkable parts of charitable giving lies buried in those eight words mentioned above. From a personal level, when fully understood, it makes your charitable giving rewarding and perhaps touches on selfishness.
You see, giving not only does good for those organizations you support, but it is also profoundly empowering and rewarding. Giving back to the community makes us feel good! Ever wonder why Ebenezer Scrooge in Charles Dickens’ iconic novel became happier once he started giving?
What charitable giving meant to Scrooge was a release from the isolation of self that marked his every day. Giving back to the community immersed him in the world around him, making him part of something much larger than himself.
Research has identified a link between charitable giving and increased activity in the area of the brain that registers pleasure, perhaps providing as much good to you as the organizations you support.(1)Most of us do not need three apparitions on Christmas Eve to understand the joy in giving.
The Taxing Aspect of Charitable Giving
Congress encourages giving back to the community by creating a financial incentive for you. When you give, you receive a tax deduction that can reduce your taxes. You can also use it for other wealth planning strategies, like converting a regular IRA to a Roth IRA without incurring additional taxes.
Now while 100% of your gift is deductible, the amount you can use in any tax year will be limited to 60% of your Adjusted Gross Income if your charitable giving involves cash.
Gifting highly appreciated assets like a stock, a bond, cryptocurrency, real estate, or other non-cash assets potentially eliminates the capital gains tax. Due to this tax benefit, when your charitable giving involves highly appreciated non-cash assets, again, while 100% of the donation is deductible, the amount you can use in any tax year is 30% of Adjusted Gross Income.
If you cannot use the entire deduction in the tax year you made the gift, you have five additional years to use it, so it generally does not go to waste. Planning your charitable giving with a financial planner or tax advisor may be prudent.
Leave a Positive Impact for Your Family to Follow
Sharing the experience of giving back to the community with your children and grandchildren teaches them they can make positive changes in the world. They may develop a greater appreciation of what they have and how they can affect the world around them. It means you are leaving your positive impact for them to follow.
Equally as important, Family Giving creates a bond with children and grandchildren, creating shared goals and visions. It helps form a connection between their lives and their part in the world community. Learning the stories behind the organizations your charitable giving support can be inspirational for them.
A Wide Array of Organizations Need Your Help
Charities and impact organizations run the gambit from organizations that support animals, the environment, children, education, diversity and inclusion, disaster relief, worldwide health, art and culture, and so much more. Reflecting on the good you are doing with your family when you give to organizations that need your help is where self-gratification emanates. It is not surprising that Scrooge could not wipe that smile off his face after that fateful Christmas Night.
Giving, Investing, or Lending to a Social Impact “For-Profit” Companies
Charitable giving does not need to be limited to 501(c) 3 organizations. A Private Family Foundation and certain Donor-Advised Funds can support for-profit social Impact companies and organizations.
Generally, a social impact company or organization is an entity whose business model highlights doing work that explicitly attempts to solve a local or global community need. These needs can include projects like clean water, agriculture for poorer communities, or refugee work, to name a few.
With these Social Impact Companies, there are opportunities for you to not only grant money to them but, in some cases, you can invest or make loans to these companies to help them achieve their objectives.
It is important to note that helping these for-profit companies is not available for all programs we explore in this series.
Next Up in the Charitable Giving Series
In the second installment of the Charitable Giving Series, we will examine a Private Family Foundation giving you easy-to-understand factors involved in this giving strategy.
(1) https://greatergood.berkeley.edu/article/item/5_ways_giving_is_good_for_you
Disclosures:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
Dunham does not provide legal or tax advice. Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Dunham cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. All financial decisions and investments involve risk, including possible loss of principal.
Investors should carefully consider a fund’s investment goals, risks, sales charges and expenses before investing. The prospectus contains this and other information. Please read the prospectus carefully before investing or sending money.
A donor advised fund is a separately identified account that is maintained and operated by a section 501( c)(3) organization, and is not a registered investment company.
Contributions to a Donor-Advised Fund are irrevocable contributions. Individuals considering a contribution to a Donor-Advised Fund should consult their legal and tax advisors regarding deductions, based on their personal considerations.
The tax information provided is general and educational in nature, and should not be construed as legal or tax advice. Dunham does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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