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FAQs: What Clients Ask About Charitable Giving at Tax Time

As we delve into the heart of the tax season, attorneys, accountants, and financial advisors are urging clients to prepare their documents for the 2023 tax returns and strategize for 2024. This period presents an optimal opportunity for advisors to revisit key tax principles surrounding charitable giving. Here, we look at three questions that you are likely to hear, offering insights on how you assist your clients with their philanthropic endeavors.

How Important Is It That High Net-Worth Clients to Deduct Gifts to Charity?

A survey revealed that a staggering 91% of investors with portfolios exceeding $5 million consider charitable giving an integral part of their estate and financial strategies. Further research indicates that the motivations of affluent donors extend far beyond tax incentives, with many stating they would continue their philanthropic efforts even in the absence of charitable tax deductions.

This highlights the significance of understanding the diverse reasons behind your clients’ generosity, including family traditions, personal convictions, empathy for certain causes, and engagement with specific charities. Consequently, discussing charitable giving with all your clients is essential, as it likely holds considerable importance to them beyond just financial benefits.

Why Do Clients Default to Giving Cash?

Many clients are often unaware of the significant tax advantages associated with donating highly-appreciated assets, such as stocks, business interests, or real estate, to their donor-advised funds or other types of funds at community foundations and public charities. Despite some being informed, the urgency of daily life leads them to opt for the simplicity of cash or credit card donations. It’s crucial for advisors to highlight the benefits of contributing non-cash assets, which can include a substantial reduction in capital gains tax and the ability to claim deductions at the asset’s full market value.

Fun Fact! At AACF, we have begun implementing monthly, recurring grants to various nonprofits through donor-advised funds at our community foundation. This innovative approach allows donors to make a single annual contribution to their fund and then distribute monthly gifts. This system eliminates the hassle of managing tax receipts and credit card statements, streamlining the donation process. With just one gift and one receipt, our team efficiently handles all administrative tasks, enabling donors to focus on the joy of giving.

What Should Clients Know About Deducting Gifts to Charity?

Understanding the nuances in deductibility rules for charitable gifts is crucial when advising your clients – that’s what they rely on you to do! Contributions to public charities, including those made to funds at community foundations, can be deducted up to 50% of a donor’s Adjusted Gross Income (AGI), in contrast to the 30% deduction limit for donations made to private foundations. Additionally, when donating non-marketable assets like real estate and closely-held stock to public charities, the deduction is typically based on the asset’s fair market value.

However, if these same assets are donated to private foundations, the deduction is limited to the donor’s cost basis. This distinction can significantly affect the financial benefits of your clients’ charitable contributions, especially for major gifts, highlighting the importance of informed guidance in their philanthropic endeavors.

Address Tax FAQs with AACF

Now that you know these basics, what’s next? Connect with us at the Athens Area Community Foundation! Incorporate discussions about charitable giving into your regular interactions with clients. From that point forward, regardless of your clients’ philanthropic goals, you can view our team as your support network, seamlessly managing all aspects of their charitable endeavors. We’re here to act as an extension of your office, providing comprehensive support for every charitable initiative your clients wish to undertake.