Charitable giving holds great significance for many, offering the dual benefits of supporting meaningful causes and providing tax advantages. However, tax-efficient charitable contributions require careful planning and strategic insight.
For over 32 years, Jupiter Wealth has provided personalized strategies that help our clients maximize charitable impact through our wealth management services in Denver, Colorado.
This blog discusses the concept of tax-efficient charitable giving and highlights key strategies designed to help you with your philanthropic goals.
Understanding Tax-Efficient Charitable Giving
Tax-efficient charitable giving is the art of designing your donations to maximize tax benefits while pursuing your philanthropic objectives. Charitable contributions to qualified organizations can reduce taxable income through itemized deductions, with deduction limits varying based on factors such as the type of asset donated and the nature of the recipient organization.
Donating cash allows for deductions up to a certain percentage of your Adjusted Gross Income (AGI). However, contributing appreciated assets, such as stocks or long-term real estate, offers significant advantages. These assets are deductible at their fair market value, enabling you to avoid capital gains taxes that would otherwise be incurred upon selling the asset.
Jupiter’s Denver wealth management team can help evaluate the benefits of different asset donations to determine the most tax-efficient options for charitable giving.
Effective Tax-Efficient Giving Strategies
Maximizing the impact of your philanthropy while enjoying significant tax advantages is possible through smart, tax-efficient giving strategies. Here are some to consider.
Bunching Donations
By grouping several years of charitable contributions into a single tax year, you can surpass the standard deduction threshold and qualify for itemized deductions. This strategy allows you to alternate between itemizing deductions in the year of the significant donation and claiming the standard deduction in other years, optimizing your tax benefits over time.
Donor-Advised Funds (DAFs)
DAFs are philanthropic vehicles that allow donors to make a charitable contribution, receive an immediate tax deduction, and recommend grants from the fund over time. This approach provides flexibility in charitable giving and the potential for investment growth within the fund, amplifying the impact of the initial donation. Jupiter’s Denver investment advisors can help you explore various investment options within your DAF.
Qualified Charitable Distributions (QCDs)
For individuals aged 70½ or older, QCDs permit direct transfers of up to $100,000 per year from an IRA to a qualified charity. These distributions count toward the required minimum distributions (RMDs) and are excluded from taxable income, offering a tax-efficient method to fulfill charitable intentions.
Charitable Gift Annuities (CGAs)
A CGA is a contractual agreement between a donor and a charity wherein the donor makes a substantial gift of cash or appreciated assets to the charity. In return, the charity provides the donor, or a designated beneficiary, with a fixed income stream for life. This arrangement offers several benefits:
- Immediate tax deduction: Donors are eligible for a partial charitable income tax deduction in the year the gift is made, based on the gift’s value minus the present value of the annuity payments.
- Capital gains tax reduction: When funding a CGA with appreciated assets held for more than one year, donors can minimize capital gains taxes. A portion of the capital gain is spread over the annuity payments, potentially reducing the immediate tax burden.
- Fixed lifetime income: The donor receives a predictable, fixed income for life, a portion of which may be tax-free, depending on the funding assets.
Charitable Remainder Trusts (CRTs)
CRTs are irrevocable trusts that provide income to the donor or other beneficiaries for a specified period, after which the remaining assets are transferred to designated charities. CRTs come in two primary forms:
- Charitable Remainder Unitrusts (CRUTs): These trusts pay a variable income based on a fixed percentage of the trust’s annually revalued assets. This structure allows for potential income growth if the trust assets appreciate.
- Charitable Remainder Annuity Trusts (CRATs): These provide a fixed annual income based on the initial value of the trust assets, offering stability regardless of market fluctuations.
Benefits of CRTs include:
- Immediate tax deduction: Donors receive a charitable income tax deduction equal to the present value of the remainder interest that will eventually go to charity.
- Capital gains tax deferral: By donating appreciated assets, donors can defer capital gains taxes, as the trust can sell the assets without immediate tax consequences.
- Estate tax reduction: Assets transferred to a CRT are removed from the donor’s estate, potentially reducing estate taxes.
Implementing CGAs and CRTs requires careful planning. Jupiter’s team of wealth managers in Denver brings decades of expertise to guide you, collaborating closely with your legal and tax advisors for a seamless planning process.
Considerations for High-Net-Worth Individuals in Denver
Colorado provides a state income tax deduction for charitable contributions, complementing federal deductions. However, for single filers with a federal adjusted gross income of $400,000 or more and joint filers with an income of $800,000 or more, the state caps itemized deductions at $30,000 and $60,000, respectively.
The federal estate tax exemption is $13.99 million per individual as of 2025. This elevated exemption is scheduled to expire on December 31, 2025; if Congress does not extend it, the exemption will revert to a base of $5 million, adjusted for inflation, in 2026.
Given the complexities of tax laws and the importance of aligning charitable giving with your goals, consulting with Jupiter’s experienced financial planners in Colorado can help make the process easier.
About Jupiter Wealth Management in Denver
Since 1992, the Boon family and their team of seasoned financial professionals have been dedicated to managing wealth for affluent families. Our philosophy is simple: we approach our client’s financial goals with the same care and commitment as our own, focusing on growth and preservation.
Jupiter Wealth Management is an SEC-registered investment advisory firm offering comprehensive family office services to multi-generational families without the high minimums and fees of traditional multi-family offices.
We provide best-in-class investment management and comprehensive financial planning rooted in a conservative, disciplined approach. Our focus goes beyond managing your assets—we strive to cultivate long-term relationships with you and your family built on trust and expertise.
To learn more about how we can help you develop a tax-efficient charitable giving strategy, please call (303) 999-3716 or schedule a consultation here.
