End of Year Charitable Giving Strategies

With the holidays fast approaching, many people are looking for ways to combine their desire to help the causes they believe in along with their desire to save on taxes. For the charitably inclined, there are strategic ways of giving that can accomplish both goals. The following strategies, as noted by Fidelity, are for your consideration and can help you make the most of your charitable giving this year.

Generally, if you itemize your deductions, making charitable contributions can decrease your tax bill, and with higher tax rates for high‐income earners, there is an increased tax benefit for charitable contributions. However, if Congress passes a tax reform bill this year, it could include a proposal to increase the standard deduction. That could mean fewer people will qualify for itemized deductions such as charitable gifts.

The following five points will help you form a successful strategy toward these objectives:

1. Give Appreciated Securities, Rather Than Cash

Most publicly traded securities with unrealized long‐term gains (meaning they were purchased more than a year ago and have increased in value) may be donated to a public charity, without the need to sell them first. When the donation is made, the donor can claim the fair market value as an itemized deduction on their federal tax return—up to 30% of the donor’s adjusted gross income (AGI).

2. Consider Establishing A Donor-Advised Fund.

A donor-advised fund (DAF) is a program of a public charity that allows donors to make contributions to the charity, become eligible to take an immediate tax deduction, and then make recommendations on their own timetable for distributing the funds to qualified charitable organizations. Establishing a DAF can be a particularly useful strategy at year‐end because it allows you to make a gift and take the tax deduction immediately but doesn’t require you to decide on the charities to support with grant recommendations.

3. Consider Using A Charitable Donation To Offset The Tax Costs of Converting A Traditional IRA To A Roth IRA.

Roth accounts may make sense if you believe your current tax rate is lower than it will be in the years you’ll make withdrawals; however, there are many other factors that must be evaluated to determine what makes sense in your individual situation.

4. Consider Donating Complex Assets

Donors may also contribute complex assets—such as private company stock, restricted stock, real estate, alternative investments, or other long-term appreciated property—directly to charity. The process for making this type of donation requires more time and effort than donating cash or publicly traded securities, but it has distinct advantages.

5. Consider A Qualified Charitable Distribution (QCD) From An IRA

The qualified charitable distribution (QCD) option emerged after Hurricane Katrina in 2005 and was made permanent by Congress in 2015. If you are at least age 70½, have an IRA, and plan to donate to charity this year, another consideration may be to make a QCD from your IRA. This action can satisfy charitable goals and allows funds to be withdrawn from an IRA without any tax consequences. A QCD can also be appealing because it can be used to satisfy your required minimum distribution (RMD).

In conclusion, we highly recommend that you engage the services of a qualified professional before attempting to undertake any of these giving strategies. You should consult your legal, tax, or financial adviser. However, properly employed, each of the strategies represents a tax‐advantaged way for you to give more to your favorite charities.