We’ve all heard the saying: it’s better to give than to receive. While this is true, when you make a charitable gift to a nonprofit organization you are not only giving to a good cause, but also putting yourself in a situation to receive several tax advantages as well.

The exact tax advantages you receive actually depend on the type of gift you make and the organization to which you give. For example, if you give $10,000 in cash to a charitable group this year, you could deduct $10,000 from your taxes on your 2005 tax return. And while there’s certainly nothing wrong with a $10,000 tax deduction, it still might not be the best you could do — particularly if you have appreciated assets, such as stocks, that you could give in lieu of cash.

Suppose you’ve been holding shares of XYZ stock for several years. Let’s assume you purchased these shares for $2,500, and they are now worth $10,000. If you were to give these shares to a charitable group, you would receive the $10,000 tax deduction based on the shares’ current market value. Furthermore, since you are not selling the shares, you avoid having to pay capital gains taxes on your $7,500 profit.

It’s always an option to gift your appreciated assets directly to a charitable group. However, depending on the circumstances, you might find it more advantageous to establish a charitable remainder trust.

A charitable remainder trust could be appealing if you have a large amount of appreciated stock. After you donate this stock to a charitable remainder trust, the trustee can sell it, reinvest the proceeds, and pay you a lifetime income stream — either as a fixed dollar amount or as a percentage of the trust’s value.

Defer Capital Gains

When the trust expires, typically at death, the remaining proceeds pass to the charitable group that administers the trust. When you create a charitable remainder trust, you can take a charitable deduction the year in which the trust is established. And you can carry forward any unused deductions for up to five years. You can also defer paying capital gains taxes on the sale of assets you have donated.

While these tax advantages are important, they are not the only benefits you receive by funding a charitable remainder trust. Your generosity can also help you broaden your investment portfolio. For example, before you made your gift, you may have been holding a sizable amount of concentrated stock positions. Once you’ve made your gift to the charitable remainder trust, you can use the income you receive to invest in a diversified mix of securities appropriate for your individual goals and objectives, risk tolerance and time horizon.

Although this strategy helps your family reduce the amount of estate taxes they may have to pay, bear in mind the assets allocated at the time the trust is established will no longer be available to be passed on to your heirs. Also, you could replace the value of these assets by purchasing a life insurance policy on yourself — using some of the income from the trust to pay the premiums — and naming your heirs as beneficiaries. Or, you may want to place the policy in an irrevocable life insurance trust. Because the trust actually owns the insurance policy, the proceeds are kept out of your taxable estate — and your heirs owe less in estate taxes.

Additional Financial Vehicles

Aside from a charitable remainder trust, there are a few other vehicles that may help you meet your philanthropic goals in a tax-efficient manner. Here are two other options for you to consider:

• Private Foundation — If you have a very large estate, you may want to establish a private foundation. You can appoint family members to sit on the foundation’s governing board and choose which charities to support.
• Donor-Advised Fund — To participate in a donor-advised fund, you give cash or appreciated assets to a community foundation or another sponsoring group. You then recommend which charitable organizations receive grants, the size of the grants, and when the grants are distributed. One of the big advantages of a donor-advised fund is you could receive a tax deduction for the full amount of your gift immediately, even if the money is not fully disbursed for several years.

When it comes to supporting the community and valued causes you hold close, it’s important to remember that when you gift everyone wins. Charitable organizations will benefit from your generosity, and you may also be able to help reduce your tax burden.