Charitable Giving Guidelines

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As the holiday season approaches, it’s a great time to begin thinking about your year-end charitable goals. If planned strategically, you can simultaneously maximize your charitable gifts and reduce your taxable income. Here are four ways to give that can help achieve both objectives.

  • Give Appreciated Securities
    Instead of cash, consider donating stocks, bonds, or mutual funds that you have owned for longer than a year and have increased in value. At the time of the donation, you can claim the fair market value of the assets as an itemized deduction on your tax return – up to 30% of your adjusted gross income (AGI). Because you donated the securities as opposed to selling them, you won’t owe any capital gains taxes either.
  • Establish a Donor-Advised Fund
    If you haven’t decided on a charity to support or the charity you’ve chosen is small and doesn’t accept gifts of stock, a donor-advised fund (DAF) could be a good solution. A DAF is a charitable giving account sponsored by a public charity that will manage donations on your behalf. To participate, you would open an account with an IRS certified 501(c)(3) organization and deposit your funds in the form of cash, securities, etc. At that point, you are immediately eligible for the tax deduction. The fund, in turn, gifts the assets to the charity of your choice. You can choose a recipient at a later date if you aren’t sure where to direct the funds.
  • Donate Complex Assets
    Although the process is more involved than donating cash or publicly traded securities, donating complex assets can have significant tax benefits. Complex assets might include:
  • Private company stock
  • Restricted stock
  • Real estate
  • Alternative investments
  • Long-term appreciated property

Similar to donating securities, it is possible to avoid capital gain taxes by donating, rather than selling, complex assets that have been owned for over a year and these assets frequently have a relatively low-cost basis. Public charities with DAF programs in place are often able to accept complex asset donations and provide guidance during the process.

  • Consider a Charitable IRA Rollover
    If you are over 70 ½, you may want to consider a charitable IRA rollover. The Qualified Charitable Distribution (QCD) was made permanent by Congress as recently as 2015 and allows you to distribute up to $100,000 directly to a charity from your IRA account. The best part? Normally, when you take money out of your IRA, it’s a taxable event and inflates your AGI. Any money that you withdraw using a QCD does not count as taxable income and therefore does not affect your AGI. That means no effects on Roth contribution eligibility, Medicare premium costs, the taxability of Social Security income, and more.

Considering a charitable gift for this holiday season? Contact our tax professionals to help you determine which giving strategy will be the most advantageous for your tax situation.