Public Charities: Giving through Philanthropy
Among the many charitable giving strategies our clients consider are creating their own 501(c)(3) public charity.
Every section 501(c)(3) organization is classified as either a private foundation or a public charity. Private foundations and public charities are distinguished primarily by the level of public involvement in their activities.
In this article, I will discuss public charities more broadly. For a more detailed article on what technical rules govern public charities, read here. To read more about private foundations, read here.
Public charities play a central role in the philanthropic landscape, offering individuals and families a way to make impactful contributions while benefiting from various tax advantages. At Bridge Law, LLP, we work with clients to integrate charitable giving strategies that support public charities, ensuring they align with personal values and financial goals. In this article, we’ll explore what public charities are, the benefits of giving to them, and the tax deduction limits associated with contributions.
What is a Public Charity?
A public charity is a type of nonprofit organization that primarily relies on public donations, government grants, and fundraising events to support its mission.
For a more detailed explanation on the rules regarding public charities and the sourcing of funds, read this article.
These organizations are recognized under Section 501(c)(3) of the Internal Revenue Code and include a wide range of institutions, such as hospitals, educational institutions, churches, and various humanitarian organizations. Public charities are distinct from private foundations, which typically receive funding from a single source or a small group of donors.
Public charities are often preferred by donors because they are typically involved directly in charitable work, making it easier for donors to see the tangible impact of their contributions. Additionally, public charities provide greater flexibility in how they use funds, enabling them to respond quickly to changing community needs or urgent causes.
Tax Benefits of Donating to Public Charities
When you contribute to a public charity, you may be eligible for significant tax benefits. The IRS provides incentives to encourage charitable donations, allowing donors to deduct their contributions from their taxable income, subject to certain limitations based on the type of charity and the donor’s adjusted gross income (AGI).
- Cash Contributions: Donors who contribute cash to public charities can deduct up to 60% of their AGI. This high deduction limit makes cash donations one of the most tax-efficient ways to support public charities. If your donations exceed this limit, the IRS allows you to carry forward the excess amount for up to five years.
- Non-Cash Contributions: Donating non-cash assets such as appreciated securities or real estate can be particularly advantageous. For contributions of appreciated assets held for more than one year, donors can generally deduct the fair market value of the property, up to 30% of their AGI. This approach not only maximizes the deduction but also helps avoid capital gains taxes that would otherwise apply if the asset were sold first.
- Qualified Charitable Distributions (QCDs): For individuals aged 70½ and older, a Qualified Charitable Distribution (QCD) from an IRA can be a tax-efficient way to support public charities. QCDs allow up to $105,000 to be donated directly from the IRA to a charity without being counted as taxable income.
The Impact of Giving to Public Charities
When you support a public charity, your contribution directly funds initiatives that create positive change. Public charities operate in a variety of fields, such as education, healthcare, disaster relief, and environmental conservation. By giving to these organizations, you have the opportunity to align your charitable contributions with causes you are passionate about, making a tangible difference in your community or around the world.
Public charities also offer donors the chance to engage with their work. Many organizations provide volunteer opportunities, events, and ways for donors to see their impact firsthand, which can deepen the sense of fulfillment that comes with giving.
Strategic Charitable Giving: Maximizing Your Contributions
To make the most of your charitable donations, it is important to plan strategically. Here are some tips for optimizing your charitable giving:
- Plan Around High-Income Years: If you expect a higher income year due to bonuses, business gains, or investment windfalls, consider bunching charitable contributions to maximize your deduction. By giving larger sums to public charities in those high-income years, you can take full advantage of the 60% AGI limit.
- Use Appreciated Assets: Donating appreciated assets like stocks or real estate can provide a double benefit: you receive a deduction for the fair market value while avoiding capital gains taxes. This is particularly effective for individuals with significant holdings in appreciated securities.
- Establish Donor-Advised Funds (DAFs): If you want to maintain flexibility while maximizing tax benefits, consider using a Donor Advised Fund (DAF) to support public charities. You can contribute assets to the DAF, receive an immediate tax deduction, and recommend grants to public charities over time. This allows you to plan your giving strategy in a way that aligns with your financial goals while ensuring long-term support for charitable causes.
Conclusion
Public charities provide a meaningful way to make an impact through charitable giving while benefiting from significant tax advantages. By understanding how to maximize deductions and strategically plan your contributions, you can ensure that your charitable efforts align with both your philanthropic and financial goals.
At Bridge Law, LLP, we work closely with clients to develop customized charitable giving strategies that maximize the benefits of supporting public charities. Whether you are looking to make cash donations, contribute appreciated assets, or explore other giving vehicles like donor advised funds, private foundations, or QCD’s, our team is here to guide you through every step.
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