Financial Planning

Year End Giving Opportunities

The year end comes with warm drinks, cold nights and special time with friends and family. Many folks use this season to make year-end gifts to their favorites charities and non-profits. But do they also know how to pair these gifts with tax saving opportunities? Here are a few ways you can support the charities you love while also improving your bottom line.

Bundling Strategies

In 2017 Congress passed the Tax Cut and Jobs Act, raising the standard deduction. While many families were used to itemizing on their taxes, now many of them take the standard deduction. The donor was able to support the charities they love but was not receiving any tax benefits.

A strategy has been developed to deal with this problem – charitable bundling. The donor will take the sum of all their gifts over the course of several years and make a single donation to charity. This donation, with perhaps other itemizable expenses, will exceed the standard deduction and allow someone to write off their gifts. This strategy can be paired with a donor advised fund, which is an account that offers charitable deductions for any funds placed in it. The catch is the donor can make a grant to charity under their own discretion throughout the years.

Lets use an example. John and Mary give $10,000 a year to a local homeless shelter. They choose to contribute three years worth of donations to a donor advised fund totaling $30,000. This allows them to exceed the standard deduction. Then they make $10,000 grants to the shelter each year for the next three years. Maintaining their giving but writing off the gifts.

Appreciated Securities

Most are used to writing a check or giving cash as a donation, however this can be seen as a less tax efficient way to give. Let’s compare this to making a gift of appreciated securities. Imagine someone owns a highly appreciated stock worth $10,000 and it was purchased for $2,000. They may owe as much as $2,380 in taxes on the stock when it’s sold. If they gave the proceeds to charity they would only be making a $7,620 donation and receive a deduction for as much. It would be better for the donor to donate the stock itself. The charity would receive the full $10,000 donation and the donor would get a larger deduction. This is a valuable strategy for people with appreciated securities.

Qualified Charitable Distributions (QCD)

We try to avoid three syllable words, but this opportunity is too neat to pass up. At age 73 most retirees will have to start making mandatory distributions from their retirement accounts. Failure to make the prescribed distribution will result in a 25% penalty. The IRS has made a loophole where retirees can satisfy the distribution requirement by making gifts to charities. It’s called a QCD for shorthand. Here’s how it works. The donor will direct their financial institution to cut a check to their charity of choice. That dollar amount will satisfy the equivalent distribution requirement and the funds will support the non-profit. And if the donor takes the standard deduction, this will still produce a tax benefit by offering an above-the-line deduction. This strategy has a few additional moving parts so make sure to talk with your advisor and accountant.

These are a few strategies our clients use to support charity and lower their tax bill. We work with our clients trusted tax professionals to help them implement their charitable goals. If you think these strategies and others would be helpful to you, please don’t hesitate to reach out.

Jon Neville


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