From the fiscal to the physical, giving is strong move

Whether it’s a contribution of time or capital, there are few things as gratifying as an act of charitable giving.

It’s a message that’s clearly catching on: In 2021 alone, Americans gave away $484.85 billion – that's a 4% increase over 2020. What’s more, the largest source of that charitable giving (67%) came from individuals. 

Why give?

There are countless reasons to give, and the benefits range from the emotional to the physical to the fiscal.

Happiness. A 2008 study by Harvard Business School found that giving money to someone else lifted the giver's happiness more than spending that money on themselves. This, despite the givers' expectation that spending on themselves would make them happier.

Health. There’s been a wide range of research linking generosity to better health, even in people with chronic illnesses. Researchers suggest one reason giving may improve physical health is that it helps decrease stress.

Social connection. Several studies have suggested that when you give to others, your generosity will likely be rewarded down the line whether by the person you gave to or by someone else. These exchanges promote a sense of trust and cooperation that strengthens our ties to others.

Finances. But in addition to these emotional and physical reasons for giving, there are also several sound financial benefits – most notably the reduction of your tax burden in both the short and the long term. 

Choose a way to give

As of 2023, the lifetime gift tax exemption – the amount you can leave in your estate without triggering estate tax – is $12.92 million. That’s up from $12.06 million in 2022. (Married couples can shield up to $25.84 million.) Although this exemption has traditionally increased each year with inflation, it is set to be cut in half at the start of 2026. And while most people will fall well under these thresholds, those meeting them must keep these upcoming changes in mind when developing their investment and giving strategy for the next few years.

Also, for 2023, the gift tax annual exclusion amount has jumped to $17,000, up from $16,000 in 2022. That means you can give away up to $17,000 to as many individuals as you’d like with no federal gift tax consequences. For parents with married children, this limit is multiplied by four to $68,000 ($17,000 from each parent to each child).

Another way to lower one’s taxable estate is to designate charities as beneficiaries. 

A donor advised fund allows you to place assets in a fund that’s not counted toward your total estate value. This lets your investments grow tax-free since they're set aside for charity, while you can advise how to invest and where to donate funds. (If you should pass away before donating, your heirs can manage and distribute the money.)

A charitable remainder trust is a trust that lets you donate to charity while providing you and your heirs with tax savings. These are typically funded with highly appreciated long-term assets like real estate or stocks. This creates an income stream for the beneficiaries, with the remainder of the trust's assets donated to one or more charities.

Cash or stock? While cash is often the easiest, gifting assets (like stocks or real estate) has additional benefits. Not only does the donor receive a charitable deduction, but the donor also does not realize any capital gains on the gift. Also, while tax deductions for charitable contributions made in cash are generally limited to 60% of gross income, non-cash contributions often have lower limits that depend on the type of asset donated. 

The bottom line

No matter how you opt to make a gift of your money, the benefits will be felt by every party involved. But it’s important to keep track of these contributions to maximize your deductions and ensure you’re not adding to your tax burden. If you'd like help mapping out a strategy for your charitable giving, speak to an experienced financial planner or tax professional. They can help you navigate the many options available and arrive at a solution that meets all your goals for your money.

Hunter Yarbrough, CPA, CFP, is a vice president and financial adviser with CapWealth. He is passionate about taking a holistic view of personal finance, including investments, taxes, retirement, education, estate planning, and insurance. For more information about Hunter and CapWealth, visit capwealthgroup.com.

The information presented is the opinion of CapWealth Advisors, LLC and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources, but no liability is accepted for any inaccuracies. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. CapWealth Advisors, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.