We talk with a lot of families who want to give more, but who feel like the only lever they have is writing a bigger check. We revel in these conversations. Few things make us happier than when clients want to be more generous and pay less in taxes. Kumbaya!
For high-income executives and business owners, there are several ways to structure giving so that more of every dollar reaches the causes you care about, and less of it goes to taxes along the way. Here is a quick overview of the strategies we bring up most often with our clients, along with the kind of person or situation each one tends to fit best.
Donor-Advised Funds (DAFs)
A donor-advised fund lets you contribute cash, stock, or other assets to a dedicated giving account, take the tax deduction in the year you contribute, and then decide over time which charities receive the money. The gift and the giving decision get separated, so you are not rushed into picking a recipient the same year you get the deduction.
This is especially helpful if you have an abnormally high-income year. Two examples we see often:
Business owners selling a business
Executives with significant bonuses, severance + signing bonus, vesting events, etc
DAFs allow us to lump up to 5 years of contributions into a single year to combat your spike in income (and tax bracket), while taking your time giving the money away thoughtfully.
Qualified Charitable Distributions (QCDs)
To understand QCDs, you have to understand required minimum distributions (RMDs). RMDs are when you have to begin pulling out a required minimum from your portfolio, even if you don’t need it. It’s fully taxed too.
If you are 70 and a half or older, a QCD lets you send money directly from your IRA to a qualified charity. The distribution counts toward your required minimum distribution, but it does not show up as taxable income the way a normal withdrawal would.
These are great forretired or semi-retired executives who are charitably inclined, hold a meaningful IRA balance, and would rather not add another layer of taxable income to their return.
Gifting Appreciated Stock
This strategy might be among our most valuable for our executive clients. Instead of donating cash to organizations, you give shares of highly appreciated stock, RSUs, or other securities. You get a deduction for the full fair market value, and neither you nor the charity pays capital gains tax on the appreciation.
This is often ideal for high-income executives sitting on a concentrated stock position from years of long-term incentive grants, or anyone holding highly appreciated shares they were not planning to sell anytime soon. If you’re already giving, let more of it go to giving and less to taxes!
Charitable Remainder Trusts (CRTs)
This option is a little more nuanced, but it has excellent applications. This is for those who want to maximize their lifetime giving without risking their needed income.
You place appreciated assets into a trust, receive an income stream from that trust for a set period or for life, and the remainder passes to charity when the trust ends. It converts a low-basis, illiquid position into diversified income while deferring the capital gains hit.
We’ve seen this well used for business owners approaching a sale or liquidity event who are holding a large, embedded gain and want income during retirement without triggering the full tax bill in one year.
Where to Start
None of these strategies are one-size-fits-all, and the right one, or right combination, depends on your income year, your asset mix, and what you are trying to accomplish for your family and the causes you care about. What all of them share is the same underlying idea behind wealth acceleration: being deliberate today so the impact compounds, whether that impact lands in a retirement account, a child's future, or a cause you believe in.
If any of these feel worth exploring for your own situation, put time on the calendar with our team, and we will walk through which approach fits best.