When it comes to maximizing charitable contributions for your clients, there’s one number that can be a real game changer: adjusted gross income (AGI). I know what you’re thinking, “AGI isn’t exactly the life of the party!” But trust me, once you see how it can boost your clients’ giving power, you might just become its biggest fan.
Let’s walk through some of the most important points. My hope is that by the end, you’ll feel comfortable and confident helping clients navigate these rules, maybe with a friendly nudge to talk to their tax professional, too!
The relationship between AGI and deductions
- More income, more deduction potential
It sounds counterintuitive, but an increase in a client’s AGI can actually allow them to claim a larger dollar amount for charitable deductions. If they sell assets that raise their AGI, that “big scary number” might give them room for a more substantial write-off in the same year. - Why advisors get stuck
Many focus solely on higher AGI equaling higher tax bills, but if your client is philanthropically inclined, that extra income might work in their favor. It’s a delicate balance, so keep it on your radar!
Planning with different deduction limits (30%, 50%, 60%)
- Cash donations
Clients can typically deduct up to 60% of AGI for gifts of cash. - Appreciated stock or securities
Usually capped at 30% of AGI, but these can be incredibly beneficial because of the built-in capital gains savings. - Combining cash and stock
If clients mix both in the same tax year, the combined limit often ends up around 50%. Don’t worry if they overshoot—any unused portion can carry forward for up to five years regardless of which type(s) of assets they contributed.
Donor-advised funds (DAFs): key record-keeping points
- Valuation made simple
When clients contribute securities to a DAF, the provider’s confirmation letter will show the donation’s fair market value (usually based on the day’s average high/low price). Perfect for basic record-keeping! - Tax lots matter
If your client is donating specific lots for strategic reasons (like choosing the highest-gain shares), they’ll need to coordinate that on the custodian side. DAF providers aren’t typically equipped to handle in-depth lot tracking or promise a particular tax outcome. - Collaborate with CPAs
As friendly and helpful as we all like to be, we’re still not in the business of giving ironclad tax advice. Work hand-in-hand with a tax pro to ensure every record is in order.
Offering guidance vs. giving tax advice
- Use safe language
It’s wise to say a donor “may claim a charitable deduction.” You and I both know disclaimers aren’t the most thrilling topic, but they protect everyone in the long run. - Educate, encourage, and refer
Share helpful info with clients so they can understand the big picture, then encourage them to check in with their accountant or attorney to confirm details.
Key takeaways for financial advisors
- Explain the AGI interplay. Let clients know that, ironically, raising AGI can open up bigger deductions in the same year.
- Leverage “stacking”. Mixing cash and appreciated assets can optimize a donor’s tax position, so help them see how 30%, 50%, and 60% limits work together.
- Keep up with record-keeping. Stress the importance of accurate valuation letters, cost basis data, and contribution confirmations.
- Stay in your lane. You’re a superstar at guiding philanthropic strategy but let tax professionals finalize the exact figures.
Bottom line
AGI might not be the talk of the town, but it’s absolutely essential in maximizing your clients’ philanthropic impact. By understanding the dance between income and percentage limits—and partnering with top-notch tax professionals—you’ll help your HNW donors feel confident, generous, and ready to make a difference. And that, my friend, is truly something to celebrate.
