Giving with Heart and Purpose

I am always inspired by the altruistic nature of my clients. Not only are they working hard to save for their families, but they are also intentionally giving to organizations that support their local communities. I find great satisfaction when I can help clients give in ways that provide maximum benefit to both the recipient and the donor. Whether you are tithing or donating to educational or artistic endowments, writing a check may not be the best way to achieve the maximum tax benefits. Unfortunately, many people do not know this and unintentionally cheat themselves out of the potential benefits that can come with giving a non-cash gift. Here are some common, yet lesser-known, benevolence-boosting ways to make your donation and make a difference.

Do you have appreciated investment positions?

You have a brokerage account and have been diligently saving money for decades. You own Amazon stock that you purchased in 1997. Well, maybe not quite, but if you have been saving for a significant amount of time, you likely have several highly appreciated investment positions. This can make for quite a tax burden when the time comes to liquidate, as long-term capital gain taxes typically range from 15% to 20%.

Instead of liquidating these positions, you can gift appreciated securities as a charitable donation. Often, stock can be transferred to an investment account held for the benefit of a church, hospital, university, or other organization. When you donate appreciated stock, the blessing can be threefold:

1. Subject to applicable IRS limits, you can write off the charitable deduction on your taxes.

2. You will not pay the capital gains taxes that would have been owed upon liquidation.

3. A tax-exempt entity, such as a church, pays no taxes on the amount of the donation received or future income from the sale of the securities.

For a detailed walkthrough on donating appreciated securities, watch our YouTube video: The Smart Way to Give. It explains how to avoid capital gains tax, take charitable deductions, and maximize the impact of your gift.

Are you giving to multiple organizations?

Making sizable donations to multiple recipients can lead to a recordkeeping headache. However, it does not have to be this way. A Donor Advised Fund (DAF) is a vehicle that allows you to make an irrevocable, lump-sum donation, then direct the assets in the DAF to multiple organizations at a later date. You recognize the tax benefit in the year the gift is made. Many types of assets, including appreciated stock positions, can be given to a DAF.

Using a DAF can allow you to coordinate your gifting efforts with your tax reduction strategy. Since the elimination of the state and local tax (SALT) deduction in 2018, many clients have begun to use a deduction bunching strategy. Deduction bunching combines multiple deductible items, such as property taxes, retirement plan contributions, and charitable contributions, into a single tax year. You take the standard deduction in the interim tax years. Several years’ worth of charitable donations can be contributed to a DAF in a single tax year, with the deduction immediately recognizable in that year. At the donor’s discretion, the money can be donated to the intended recipients at a future date.

Do you want to reduce your taxable income?

If you are taking Required Minimum Distributions (RMDs) from your retirement accounts, there is an additional way to give. You can direct all or a portion of your RMD to a qualified charitable entity, completely bypassing the “IRA distributions” line on your Form 1040. The Qualified Charitable Distribution (QCD) allows retirees who do not need their RMD income to donate it directly to a church or other charitable organization. Up to $100,000 of the donated amount counts towards your RMD for that tax year, and since it is donated directly to the recipient, you do not pay income tax on the amount.

This is beneficial for a few reasons:

1. Making QCDs can draw down the balance of your qualified account, reducing future RMD amounts. If RMDs and their tax consequences have been a concern, this could be helpful.

2. The entire QCD, up to $100,000, is removed from your taxable income.

If you are married, each person can give up to $100,000, making a household limit of $200,000 per year. This is potentially a larger tax benefit than what you might receive if you donated stock directly from a brokerage account or gave cash from a checking or savings account. Asset and cash gifts can be subject to deductibility limitations based on your AGI, while the QCD bypasses your 1040 entirely, holistically reducing your taxable income, regardless of your AGI.

Let’s put some of these tax-saving concepts together. Here is an example:

Lorna is a widow who is required to take a $75,000 RMD from her IRA. She does not need the money to cover any expenses, so she wants to gift it to a local charity. If she takes her RMD and gifts appreciated securities from her taxable brokerage account to the charity, she has an AGI of $200,000. If she makes the QCD instead, she will have an AGI of $125,000 and will not need to gift appreciated securities because the gift was made directly from her IRA to the charity.

As you can see, having the entire RMD bypass her taxable income is more helpful to her tax situation, even though the charity receives the same donation amount. For a step-by-step guide on making a QCD, watch our video: Tax-Free Giving From Your IRA, which explains how QCDs reduce taxable income, satisfy RMDs, and maximize charitable impact.

Charitable giving can be more impactful than a simple check. If you haven’t yet explored these strategies, let’s connect and find ways to maximize the benefit for both you and the recipients of your generosity.