Give and Receive - Strategies to Optimize Charitable Giving

Scan Alert Image.jpg  By Jon Flaherty, CFP ®

What’s your favorite charity to support and do you wish you could give more?  Have you ever thought about how and what you’re gifting to your charity of choice?  For most folks, the standard is to write a check or give cash, but there could be more tax efficient ways to make your gift.  If we can help you optimize your gifting strategy, would you give the difference to charity too?   

Some alternative methods of giving include using a Donor Advised Fund (DAF) and doubling up on your charitable contributions every other year, gifting appreciated assets and using Qualified Charitable Distributions (QCD) after age 70 ½.  These alternative methods might not work for everyone, but you should at least do the analysis to see if your situation could be optimized. 

Donor Advised Funds (DAF) allow you to make an irrevocable gift that is then held in a charitable account.  You cannot take these gifts back, but you still retain the right to direct where and when these dollars will go to a registered 501(c)(3) nonprofit organization.  You can then claim as an itemized deduction the full amount gifted to the DAF in the year the gift is made.  Funds in the DAF can stay in the account for multiple years or you can direct them to a charity right away.  This opens the door to allow for doubling up on your charitable donations in one year to maximize the itemized deduction while still gifting to your charity the same amount each year.  This strategy will only provide tax efficiency if the contributions exceed the standard deduction on your annual tax return. 

If doubling up on your charitable contributions in one year doesn’t seem feasible or won’t help increase your itemized deductions effectively, you could consider gifting appreciated assets instead of cash.  To do this, you will need an asset, such as shares of stock held in a taxable account, that you’ve held for more than one year and has grown in value.  If you were to sell this position to raise cash, it would trigger reportable capital gains that you may have to pay tax on.  Instead of getting hit with capital gains, you can gift this position directly to your charity of choice.  You can then use the cash you would have donated to buy back the position and re-establish your cost basis at a higher level. 

Gifting appreciated assets works well on its own but can also be used in conjunction with a Donor Advised Fund.  In this instance, you would transfer the appreciated asset directly into your Donor Advised Fund.  In doing so, you could potentially reduce realized capital gains while simultaneously increasing your itemized deductions.  If your situation fits, then this can be a very effective combination to use. 

After the passage of the SECURE act, the US government requires individuals to take a Required Minimum Distribution (RMD) from their tax deferred accounts starting at age 72.  However, the SECURE act did not change the age at which you can start making qualified charitable distributions and that remains the year you reach age 70 ½.  From that point forward, you can direct up to $100,000 to a charity from your tax deferred account and not have it count as taxable income each year.  QCDs can count as your RMD or a portion of it after age 72, so this technique can help reduce your taxable income each year but still allows you to support your charity of choice. 

If you need help determining if any of the above methods could help optimize your gifting strategy, please reach out to me at JFlaherty@vantagefinancial.com.         

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Where applicable, all data and information has been gathered from sources believed to be accurate such as the internet, non-affiliated 3rd parties, news articles and professional subscriptions but this information is not warranted to be correct, complete or true.  Vantage Financial Partners Limited, Inc. and its agents are not tax advisors or accountants.  We strongly encourage you review your tax situation, opportunities and liabilities with your tax advisor before making any changes.  This article is not intended as tax advice.

 

 

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