Giving through a foundation has advantages

About a week ago I had the opportunity to attend the 2018 Toast to our Towns Gala, hosted by the Truman Heartland Community Foundation. The event serves as an opportunity to honor people and organizations who have dedicated themselves to serving Eastern Jackson County. It really is a celebration of generosity, and the impact those who show it can have on an entire community.

Generally, how charitable foundations work is not widely understood. This is a shame for multiple reasons, perhaps most importantly, because people do not realize the huge amount of tax savings they are leaving on the table by not working with one. That’s why we work so closely with groups like Truman Heartland Community Foundation to help our clients develop giving strategies that can literally save them thousands of dollars a year.

Broadly speaking, a community foundation is a tax-exempt non-profit organization that primarily provides support to charitable organizations within the geographic community or region where it is located. They usually receive the funds they use from a multitude of donors who pool their resources within the foundation. Typically the foundation invests those funds and administers grants upon the request of the donors.

The tax advantages of working with a foundation are numerous. As most are probably aware, charitable giving can be deducted from both individual and corporate income taxes. But what you may not know is that when securities are given directly to a charity, any long term capital gains taxes on those investments are also eliminated. The rates on these capital gains can be as much as 20 percent but can be avoided if the security is donated directly to a non-profit. This combination of income and capital gains reduction can often be substantial.

With that being said, you may be asking yourself why not just donate securities directly to the charity? Why use a foundation as the middle man? There are several reasons this can be advantageous. From a logistical standpoint, many charities might not have the mechanisms in place to even know how to accept donated securities. We’ve found many smaller non-profits have neither the experience or the man power to handle such non-cash donations. However, the process for transferring positions directly to a foundation can be very simple, particularly, if you’re working directly with an adviser.

Another even larger advantage is the expanded timetable you have to make your donations. When someone donates directly to a charity they must do so within the calendar year in which they wish to receive the tax write off. For example, let’s say someone wishes to receive a $10,000 deduction on their 2018 taxes. If they donate the money directly to their charity of choice, the entire $10,000 must be transferred within that calendar year. However, if they instead donate that $10,000 to a foundation, they get to choose when and how the money is distributed regardless of the time frame. They can choose to send a portion of it in 2018 and allow the rest to grow for future donations while getting credit for the entire $10,000 gift in 2018.  In fact, if planned properly, a one-time donation invested well can result in decades of continued giving.

Winston Churchill once said “We make a living by what we get. We make a life by what we give.” For me that comment couldn’t be more accurate. That’s why I am very proud to work for a company that believes so strongly in charitable giving. In fact, Stewardship Capital gives 10 percent of all the revenue we receive through our management fees back to non-profits in the area. In addition, we provide pro-bono services to many organizations, and make time available for employees to volunteer during business hours.

If giving is something you’re interested in, but want to do it in the most tax efficient way possible, we can help develop a strategy for you at no charge. Just reach out to us by email at info@stewcap.com. Or give us a call.

October 10th, 2018|Categories: Personal Finances|