Gifts That Keep On Giving

November 23, 2021

As we approach Thanksgiving, and as we near the close of another calendar year, it’s a great time to think about how charitable giving might fit into your financial plan.

While you might think of charitable planning as something only for the ultra-wealthy, there are some simple yet effective ways to make a positive impact on a charity of choice – and on your tax bill!

1. Qualified Charitable Distributions (QCD’s) – If you are required to take RMD’s (Required Minimum Distributions) from a traditional IRA and you plan to make donations to qualified charities, having that donation sent directly from the IRA to the charity may allow you to avoid taxation on the donated amount. IRA owners who have reached age 70 ½ are typically eligible to make this type of charitable distribution (up to $100,000 annually) and exclude it from their Adjusted Gross Income. Even if you don’t itemize your deductions, you could still benefit from QCD’s by potentially avoiding taxes that would have otherwise been paid on the gifted amount.

2. Donor Advised Funds – Another simple but powerful charitable tool with a tax twist is the Donor Advised Fund. This is a special type of investment account established solely for charitable giving. Donors contribute charitable funds into the account, at which point the funds become a qualified donation for tax purposes. The owner receives a deduction equal to the dollar amount contributed, but the funds can remain invested in the account and fund years of charitable gifts to eligible charities at the donor’s direction.

This strategy is particularly advantageous when charitably inclined investors hold investments with significant unrealized gains (in other words, those that have appreciated in value). Instead of selling the investments, paying the taxes, and then donating the after-tax amount to the charity, the investor can instead contribute the appreciated assets to the fund, realize an immediate tax deduction equal to the Fair Market Value of the gifted securities (within certain income limitations), and then the fund can sell the securities and pay no taxes because of its status as a non-profit organization. A win-win for both the investor and the charity!

If you’d like to see how these gifting strategies might work for you or which of your favorite charities qualify, we are happy to look it over along with your CPA.

Please note that this content is not intended to be tax advice. Individual circumstances will dictate the use of these strategies. We recommend consulting with your tax professional prior to taking any action.