Mercer Advisors Logo

The Benefits of Charitable Giving

Melanie Guhit

CFP®, Financial Planner


Philanthropy can provide many benefits, from a sense of fulfillment and community building, to helping you minimize taxes.

The word “philanthropy” originates from the ancient Greek word “philanthropia,” which translates in English to “love of humankind.” Modern philanthropy has been around since the 16th century and has only grown over time.

According to Charity Navigator, a search engine for evaluating charities, charitable giving in the US hit a record high of $410 billion in 2017, which is larger than the GDP of some countries. Giving has increased every year since 1977, except for 1987, 2008, and 2009, where we saw declines.[1]

The Benefits of Charitable Giving

Reasons for Giving

The numbers speak for themselves. People are giving to charities and they continue to give each year, both for qualitative and quantitative reasons.

For personal connection: You give to support causes that matter to you on a personal level. For example, if you care about animals, you may donate to an animal shelter. Or perhaps you have a close friend with health issues, so you donate to a charity that helps people with this particular issue.

For community support and building: Let’s say you’re concerned about the homelessness in your community. You make donations to support a new affordable housing project while volunteering your time to help see this project through. Along the way, you’ll meet others supporting the same cause and become a part of the community working towards a common goal.

For family bonding and family values: You may disagree with your family on a lot of things, but maybe you can agree on supporting a few causes. Gifting through a family fund each year can help bring your family closer together. You can also build a family legacy through the same fund.

For increased happiness: Two psychologists from the University of Chicago and Northwestern University carried out a study[2] to see if people saw any increase in happiness levels from giving away money vs. spending money on themselves. The study showed that giving away money led to more happiness over time.


Benefits of Charity

While you may not associate taxes with giving, your charitable contributions can help reduce your tax burden. The IRS provides tax benefits for those who donate to charitable organizations, specifically to organizations with a 501(c) tax-exempt filing status. You can gift anything from cash, securities, real estate, art, clothes, books, etc. If you volunteer your time, the IRS even lets you deduct miles driven in service of charitable organizations (14 cents per mile).

Here are some other benefits to giving:

  1. Lower your tax bill: If you itemize deductions on your tax return, charitable donations can help you lower your taxable income, up to 60% of your adjusted gross income (AGI) for donations to public charities and up to 30% for donations made to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations. Any dollars gifted above these limits are carried forward for a maximum of 5 years before they expire. Your AGI limit percentage also varies by the type of asset you’re donating, whether it’s cash, capital gains property (typically investments held longer than one year), or ordinary income property.
  2. Reduce your taxable estate: If your estate is subject to estate tax, gifting assets can help reduce the size of your taxable estate. For example, if your taxable estate is above the estate tax exemption limits, the amount above the limit will be taxed at the highest estate tax rate, which is currently 40%. The 2019 federal estate tax exemption limits are now $11.4 million if you’re a single filer and $22.8 million for a married couple filing jointly.
  3. Help avoid capital gains taxes: Let’s say you received equity compensation at a low stock price and the price has doubled since then. If you want to avoid additional taxes and capital gains, you might consider gifting these stocks. When you gift stock to qualified charities, you don’t pay capital gains tax on the stock – and neither does the charity.

In essence, you end up gifting the full value of your stock and having a greater impact than if you had sold your stock first and then made the charitable donation. Read more about how you can use your concentrated positions to maximize your charitable giving.


Charitable Strategies and Vehicles to Get Your Giving Started

Want to get started but not sure where to start? Here are some ideas to consider:

  • Establish a gifting amount for the year. If you have highly appreciated, low-cost basis stocks in your investment portfolio, talk to your financial or tax advisor about which stocks make sense to donate. You can also discuss how much to gift per year based on your individual tax situation.
  • Involve your family in your giving. If you’re passionate about philanthropy and want to pass on philanthropic values to your children and heirs, you can establish a private foundation or set up a donor-advised fund. There are pros and cons to using a private foundation or a donor-advised fund, so it may be worthwhile talking to your advisor about your giving intentions before deciding which strategy to use.
    1. Private foundations. With private foundations, legal and administrative responsibilities can be extensive, including keeping detailed records of your charitable activity, meeting with your foundation’s board of directors, gifting/spending approximately 5% of the foundation’s prior year’s average net investment assets, and filing a separate tax return by May 15. Also, keep in mind that the foundation’s finances are public information for others to access, so this is not the ideal option for families who prefer to keep their matters private. The private foundation’s net investment income is also subject to a 1-2% excise tax. Before starting a private foundation, be sure to talk to your financial or tax professional to understand the level of commitment required.
    2. Donor-Advised Funds. Unlike private foundations, donor-advised funds require less maintenance since the recordkeeping is handled by the fund custodian. Once you open a donor-advised fund, you receive a tax deduction in the year you fund it. You can decide which charities you want to benefit at a future date, allowing your funds to keep growing for as long as you want while also maximizing your donations.
  • Make a qualified charitable donation (QCD). If you’re retired and have IRA assets, you need to take required minimum distributions from your IRA in the year you turn age 70 ½ or you’ll be charged a 50% penalty on the undistributed amount. With a QCD, you can fulfill your required minimum distribution requirement by re-directing the distribution to charities of your choice, up to $100,000/year (and another $100,000 for your spouse if you’re married), without adding to your taxable income.
  • Gift your assets while taking advantage of income generation. Charitable remainder trusts allow you to take income from the trust each year for a specified term. The remaining trust assets are gifted to a charity of your choice. Charitable lead trusts are essentially the inverse, where income is paid out to charities each year for a specified term, with the remainder distributed to your trust beneficiaries.


Do Your Research

It’s important to vet charities to ensure they’re financial healthy, that they qualify for a charitable deduction, and to allocate donation proceeds in a way that leads to results for the organization. Talk to your advisor about your charitable giving intentions and how you can save on taxes while accomplishing your charitable goals.


Additional resources for giving

Charity Navigator

Tax Exempt Organization Search

Disclosure: The information provided does not constitute as tax or financial advice and is meant to give readers an introduction to charitable giving. If you want specific information on how you can save on taxes through charitable giving, then contact your tax professional or financial advisor.


[1] “Giving Statistics,” Charity Navigator.
[2] “Giving, Rather Than Receiving, Leads to Lasting Happiness: Study,” Huffington Post.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.

This article may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Mercer Advisors’ control.