May 21, 2020

Four Steps to High-Impact, Tax-Smart Charitable Giving

Investors and nonprofits are still adapting to the Tax Cuts and Jobs Act as they face more volatile and uncertain markets. It's an environment well suited to charitable giving strategies that maximize tax benefits and deliver more impact to charities.

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By Kim Laughton, President of Schwab Charitable

Schwab Charitable celebrates its 20th anniversary with our donors reaching an incredible milestone: They have recommended more than $12.5 billion in grants to 150,000 charities since inception. During fiscal year 2019, we saw a 33% increase in dollars granted and a 26% increase in the number of grants to over 83,000 charities compared to the prior fiscal year. To sustain this momentum, we are encouraging donors to take four steps to potentially increase their impact.

1. Contribute appreciated, non-cash assets and investments to charity.

Despite some volatility, the S&P 500® index has roughly doubled in the last six years.1 With continued uncertainty and a recession on the horizon, now could be an ideal time to unlock appreciated non-cash assets and investments for tax-smart charitable giving while their values are relatively high.

What can you do?

Identify highly appreciated, non-cash assets and investments, and donate them to a public charity, including a donor-advised fund. In addition to receiving a current year tax deduction, individuals generally do not pay capital gains tax on the sale of donated assets that have been held for more than one year. This can offset capital gains taxes that may be generated by portfolio rebalancing and increase the amount available for granting by up to 20% compared to selling the assets and donating the proceeds. In fiscal year 2019, 66% of contributions to Schwab Charitable were non-cash assets and investments. The most popular were publicly traded securities, restricted stock, real estate and privately held business interests.

Hypothetical Example, assuming investment has been held for more than a year

Where can you learn more?

Learn more about making non-cash contributions >

2. Take advantage of the charitable deduction.

The charitable deduction is one of the best ways to reduce income tax for individuals who itemize deductions on their tax returns. Donors can deduct up to 30% of their adjusted gross income (AGI) for non-cash donations, and up to 60% of their AGI for cash donations.

The Tax Cuts and Jobs Act also created a new opportunity for many donors who have historically itemized deductions by raising the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly. By concentrating, or bunching, charitable contributions and then itemizing every few years, individuals may be able to benefit from both the increased standard deduction and the charitable deduction, and give more to charity. A donor-advised fund account makes it easy to fund more than one year of giving in advance and provide consistent support to charities over time.

Hypothetical Example of a married couple with no children

Where can you learn more?

Learn "Strategies to help maximize giving and reduce taxes in 2019." >

3. Align your investments with your values.

A growing number of donors want to incorporate their values into their investments. Money managers representing one quarter of assets under professional management in the US now incorporate ESG criteria or strategies into their investment analysis and decision making process.2 Transitioning investments to a values-driven strategy can generate significant capital gains taxes or capital losses as an investor sells holdings not consistent with the socially responsible mandate. Donors can potentially ease the capital gains tax burden from selling appreciated assets held for more than one year by contributing a portion of these assets to charity, including donor-advised funds.

Donor-advised funds also offer an opportunity to invest funds that have been set aside for charity in socially responsible businesses. Individuals who have contributed to a donor-advised fund may invest their account balances for tax-free potential investment growth ahead of future granting. Since Schwab Charitable was founded, investment growth has generated almost $3 billion in additional funds to support donors' philanthropy.

Schwab Charitable offers two investment pools with socially responsible mandates. Donors with larger accounts at Schwab Charitable may recommend an investment advisor to manage a custom socially responsible or impact investment portfolio for their charitable accounts. More than 150 such funds are available to financial advisors and individual investors through Charles Schwab & Co., Inc., including choices from Calvert Investments, Domini Social Investments, Parnassus Investments, and Pax World Funds.

Where can you learn more?

Learn how one donor transitioned her investment portfolio to support a 10-year commitment to gender equality. >

4. Invest in the long-term health of nonprofits.

 

Despite Schwab Charitable's record fiscal year of granting, total individual charitable giving in the US decreased just over 1% in 2018.3 Two factors that may have contributed to the decline – a volatile stock market and the increased standard deduction – remain with us. Research also suggests that pressure to keep overhead low and promote programs may create an incentive for nonprofits to underfund the infrastructure that can make them financially resilient.4

Donors can help their charities of choice become financially stronger by creating a charitable plan that reflects their philanthropic objectives and financial considerations. Schwab Charitable offers donors knowledge and guidance about establishing a charitable mission, researching charities, and setting giving goals. We also make it easy for donors to monitor their strategy with convenient online and mobile access, tools which visually track progress, a simple “grant again” feature, and recurring grant functionality.

Planned giving is good for charities and donor-advised funds serve as an important revenue source for nonprofit organizations during recessions.5 A thoughtful charitable plan helps donors support healthy charities that deliver successful programs through times of economic uncertainty.

Tailor your charitable plan to the financial needs of your favorite charities

Ask questions

  • How much funding comes from annual fundraising versus recurring income? Are shortfalls expected?
  • Do any individual programs face funding shortfalls?
  • When does the fiscal year end? What is required to meet program or budget goals?
  • What are the return expectations for the endowment? Are these realistic?
  • What is the biggest threat to the charity's financial health?

Find answers

Where can you learn more?

Read ""What Nonprofit Leaders Wish More People Knew""

Now is a good time to engage your favorite charities.

Donors consistently tell us that their most rewarding experiences with charities come through deep engagement. This year, consider whether you can increase your charitable impact through ongoing support with time and talent in addition to money. By supporting the long-term stability of the nonprofit sector through tax-smart giving and high-impact engagement, donors will help their favorite causes continue to thrive in 2019 and beyond.

Donors should carefully consider information contained in the prospectus, or if available, the summary prospectus, for the registered underlying mutual funds, including investment objectives, risks, charges and expenses. You can request a prospectus by calling Schwab Charitable at 800-746-6216. Please read the prospectus carefully before making contributions or recommending investment of funds.

1. Yahoo Finance. As of October 1, 2019.

2. Forum for Sustainable and Responsible Investment: Report on US Sustainable, Responsible and Impact Investing Trends, 2018.

3. Giving USA: Giving USA 2018: The Annual Report on Philanthropy for the Year 2018, June 2019. Total charitable giving reached $427.71 billion in 2018. Giving by individuals totaled $292.09 billion, a decline of 1.1% (or 3.4% adjusted for inflation) compared to 2017.

4. Stanford Social Innovation Review: Michael Etzel & Hilary Pennington: Time to Reboot Grantmaking, June 2017.

5. H. Daniel Heist & Danielle Vance-McMullen: Understanding Donor-Advised Funds: How Grants Flow During Recessions, 2019.

Schwab Charitable is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable are considered an irrevocable gift and are not refundable. Please be aware that Schwab Charitable has exclusive legal control over the assets you have contributed. Although every effort has been made to ensure that the information provided is correct, Schwab Charitable cannot guarantee its accuracy. This information is not provided to the IRS.

Contributions of certain real estate, private equity or other illiquid assets are accepted via a charitable intermediary, with proceeds transferred to a donor-advised account upon liquidation. This intermediary considers donations on a case-by-case basis, and assets typically must be valued at $250,000 or more. Call the Fund for more information at 800-746-6216.

Market fluctuations may cause the value of investments held in a donor-advised account to be worth more or less than the value of the original contribution to the funds. Socially screened funds exclude certain investments and therefore may not be able to take advantage of the same opportunities or market trends as funds that do not use social screens.

This content was updated January 2020.

A donor's ability to claim itemized deductions is subject to a variety of limitations depending on the donor's specific tax situation.

Schwab Charitable does not provide tax or legal advice. Where specific advice is necessary or appropriate, Schwab Charitable recommends consultation with a qualified professional.

Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund™, an independent nonprofit organization, which has entered into service agreements with certain subsidiaries of The Charles Schwab Corporation.

Diversification and rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment. Rebalancing may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events may be created that may affect your tax liability.

This information is not intended to be a substitute for specific individual tax, legal or investment planning advice. Where specific advice is necessary or appropriate, please consult a qualified tax advisor, CPA, Financial Planner or Investment Manager.

©2020 Schwab Charitable Fund. All Rights Reserved. REF (0120-9H6D)

(0120-9H6D)

 

Schwab Charitable Fund™ is recognized as a tax-exempt public charity as described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(vi) of the Internal Revenue Code. Contributions made to Schwab Charitable Fund™ are considered an irrevocable gift and are not refundable. Please be aware that Schwab Charitable has exclusive legal control over the assets you have contributed. Although every effort has been made to ensure that the information provided is correct, Schwab Charitable cannot guarantee its accuracy. This information is not provided to the IRS.

Schwab Charitable does not provide specific individualized legal or tax advice. Please consult a qualified legal or tax advisor where such advice is necessary or appropriate.

Schwab Charitable is the name used for the combined programs and services of Schwab Charitable Fund™, an independent nonprofit organization, which has entered into service agreements with certain subsidiaries of The Charles Schwab Corporation.

© 2021 Schwab Charitable Fund. All rights reserved.