As we near year-end 2022 many will contemplate giving strategies into their planning. There are many important causes that our clients care about and enjoy supporting. What I have found over the years, particularly after we review everyone’s tax return, is that not everyone maximizes their giving opportunities. My hope with this series of articles, social media posts and webinars is to help everyone make the most of their philanthropic giving.
Let’s start with three ways to manage your giving this year.
1. Consider donating appreciated securities
Many investors hold either individual stocks, mutual funds or exchange traded funds that have grown over the years. When those securities are sold, they realize or capture a capital gain. Those capital gains are then taxable to the investor.
Why not donate those securities, benefit the charity, and avoid the capital gain? Many miss this opportunity primarily due to inertia. Giving cash or writing a check is the path of least resistance. We can also give in an immediate fashion by donating this way. However, there are multiple benefits to donating appreciated securities.
The capital gain imbedded in these securities is avoided by both the investor and the charity. When appreciated property is donated it is placed in a brokerage account that is owned by the charity. They then have the discretion to either sell or hold the security. Either way, the capital gains tax is avoided, and the charity has the security’s value to further their mission. I think we call that a win-win! 😊
2. Qualified Charitable Distributions (QCD’s)
With this strategy funds go directly from your IRA to the charity of your choosing. This can become advantageous for the philanthropic minded investor that is taking their required minimum distributions. At age 72 a specified amount is required to be removed from an IRA and is subsequently taxed at the investor’s ordinary income tax rate. In some cases, the amounts are larger than what is needed for the investor’s annual income.
Giving a portion of this distribution to charity may lower one’s adjusted gross income and, of course, benefit the charity. Again, winner winner; chicken dinner!
3.A Giving Plan is Crucial
Rather than giving based on emotion and convenience, it is important to plot out one’s giving strategy. Just as we plan for income, cash flow, expenses, debt management, estate/legacy, and college we need to plan for our charitable intent. Many have very specific amounts and charity’s in mind. Others may want to develop a path to make a major gift.
Planning can take into account the maximum tax benefits, deploying various giving strategies and making the largest impact possible.