My F&M

Sprucing-Up Your Charitable Gifting Strategies

Tax season is now in the rearview mirror (whew!), but it’s still early in the year and now may be the perfect time to “spruce-up” your charitable giving strategy.

You can give to charity in many ways (cash, property, securities, etc.), but some strategies may be better than others. Giving cash is straight forward and easy to do, but there are other ways to make your charitable giving more effective.

Appreciated Securities in Lieu of Cash

If you’ve held a stock for more than one year and donate it to a charity, you get a tax deduction for the fair market value of the stock and avoid paying capital gains tax. The charity sells the stock tax free and uses the proceeds. A win-win!

For example, let’s say you have $10,000 of ABC stock with a low cost basis that you’ve held for several years. You also have $10,000 of cash. If you gift the cash and sell the stock you have to pay tax on the sale, but if you gift the stock you completely avoid paying capital gains tax on the appreciation. In fact, if you like the stock you could use the cash to “re-buy” the stock with a cost basis equal to the current fair market value. Implementing this strategy is easy. Give us the charitable organization’s contact name and number and we’ll handle the rest.

Donor-Advised Funds

Another way to make your charitable giving more effective is to use a donor-advised fund. Donor-advised funds are typically offered by financial services firms and community foundations. A donor-advised fund is an account in your name to which you can transfer cash or securities that you want to earmark for charitable giving. You get an immediate tax deduction in the year you make the transfer. You can then request distributions to your specific charities at your own pace. It’s very easy to transfer money from a donor-advised fund to most 501(c)(3) charities.   

These funds are useful in several ways. Say your regular gifting budget is $10,000/year, but you have a high income year in which a $50,000 tax deduction would be beneficial. A donor-advised fund is the perfect solution as you can transfer $50,000 into the account to get a current year tax deduction and then make distributions to the charity for the next 5 years or more. This also works well when you’d like the tax deduction, but haven’t decided on the charity.

Typically the minimum balance to open a donor-advice fund is $5,000.  Recommendations to the charity can be as low as $50-$100. These low minimums make donor-advised funds beneficial when you want to make smaller sized gifts multiple times throughout the year. Giving to your place of worship is a perfect example. It wouldn’t be administratively feasible to give five shares of ABC stock 50 times a year, but you could transfer $10,000 worth of ABC stock into your donor advised fund and make your weekly gift recommendations from this fund.

Using an IRA

Currently this strategy has not been reinstated for 2014 but, as they have done for several years, the expectation is that it will be revived. If reinstated this strategy allows IRA owners over the age of 70 ½ to transfer up to $100,000 directly to a qualified charity and avoid all taxes on the transfer. This is called a Qualified Charitable Distribution (QCD). Unlike a QCD, a typical charitable donation reduces federal tax, but does not reduce your Adjusted Gross Income (AGI).  Many taxes and even Medicare premiums are based on your AGI, so using a QCD to keep it lower could give you more bang for your charitable buck. And the distribution counts toward your required minimum distribution. 

If you’d like to learn more as to how these strategies and others can help “spruce-up” your charitable gifting please give us a call.