Doing Well By Doing Good

This story appears in the
November 2008
issue of
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There are about 58 billion reasons it would be nice to be Bill Gates. But my favorite is that in his lifetime, he gets to see the effects of his philanthropy through the Bill & Melinda Gates Foundation. On a somewhat smaller scale, any of us can have the same kind of effect on our communities or issues we care about. Fortunately, financial planners say, real incentives and techniques exist to make philanthropic efforts pay off for us in the bank account as well as in warm, charitable fuzzies. While the Gateses might not care about the extra incentives, the rest of us, I assume, will take what we can get.

The first thing to realize is that charitable giving is not strictly the domain of older folks who are retired and planning their legacies. Even entrepreneurs in their 20s and 30s can do well by doing good. The second thing to know is that you have to want to donate money for this to work out. If you’re strictly looking at this as a tax-planning strategy, you can probably find a better way to accomplish your goal. However, if you are interested in being philanthropically minded, there are some financial planning benefits to be had, too. For example:

  • Keep an eye out for tax bracket creep. It might be better to give a little more to charity than to Uncle Sam if, say, you’re about to go from the 28 percent to the 33 percent federal tax bracket.
  • Offset investment gains for those years when you don’t have comparable investment losses.
  • Make a temporary gift of “appreciating assets,” such as a piece of rental property or shares of individual stock, giving them to charity for a while (through a charitable lead trust) with the assets eventually passing on to your kids or grandkids. That kind of maneuver could reduce your income taxes and future gift taxes, estate taxes and generation-skipping transfer taxes.
  • Create a lifetime stream of income by making a sizeable charitable donation but taking only a partial deduction, using the rest to create a gift annuity that keeps on giving back to you for years to come.

Owners of closely held corporations might want to consider contributing stock in their companies. In some cases, it may turn out to be a better idea for the corporation itself to make the charitable donation. Either way, all these maneuvers will likely benefit you more if you have a long conversation with your financial advisor–and do plenty of your own research–before leaping into the void.

Scott Bernard Nelson is a newspaper editor and freelance writer in Portland, Oregon.

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