Here’s how to pick the best charitable giving strategy

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It’s easy to send cash if you have a charity you care about. However, other fundraising strategies could offer a larger tax break, finance experts say.

Despite economic uncertainty, nearly 70% of Americans plan to donate a similar amount to charity in 2022 as they did last year, according to a recent study by Edward Jones.

Most people give cash for convenience, but it’s generally not the most tax-efficient strategy, said certified financial planner David Foster, founder of Gateway Wealth Management in St. Louis.

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While the S&P 500 is down more than 20% in 2022, investors could still have built-in gains from previous years, Foster explained.

It’s usually better to donate profitable assets from a brokerage account to charity because you avoid paying capital gains taxes, resulting in a larger donation to the organization.

Of course, the decision depends on other factors and goals, such as a desire to pass wealth on to family members, Foster said.

In general, two strategies work for the “vast majority of people,” he said.

Donor Referred Funds use an upfront donation to a future donation account, and qualifying charitable distributions use direct transfers to charity from an individual retirement account.

Here you can find out which one is right for you.

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The “First Source of Giving” if you are 70½ years of age or older

There are relatively few circumstances where this would not be your first source of donations if you are 70½ years of age or older.

David Forest

Founder of Gateway Wealth Management

The purpose is to get money out of your IRA before taxes without owing taxes and send the money directly to a charity, Foster said. The move reduces adjusted gross income, rather than providing a charity deduction for claimants who provide details.

“There are relatively few circumstances where this would not be the first source of donations if you are 70½ years of age or older,” he said.

Funds recommended by donors can “simplify” your giving.

Another popular strategy, donor-suggested funds, acts like a charitable checkbook.

After you transfer assets to a donor-recommended fund, you can request a write-off in advance when reporting deductions, and you can make future donations from the account.

“It can make your giving a lot easier,” Foster said, especially if you’re giving money to multiple charities. For example, instead of servicing a dozen organizations with separate reporting, there is only one to track, he said.

For 2022, the standard deduction is $12,950 for singles and $25,900 for married couples applying together, meaning you won’t see a charitable gift tax benefit unless your total single deductions exceed those amounts.

However, it might be easier to break through those thresholds by pooling donations over multiple years, said Mitchell Kraus, a CFP and owner of Capital Intelligence Associates in Santa Monica, Calif.

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You can claim a charity deduction by giving more to a donor-recommended fund now and choosing the best causes for the money later, he said.

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