Author: Thomas G. Goodwin CFP®, EA
6 Ways to Participate in Charitable Giving
Support for charitable organizations is often included as an element of financial plans, both through annual donations and as a component of estate plans. The changes implemented by the Tax Cut And Jobs Act Of 2017 affects the tax advantages of many gifting strategies. These gifting strategies can be separated into two broad categories: current gifts and future gifts.
CURRENT GIFTS are available for immediate use by the charity. These include donations of cash, appreciated shares of stock, or distributions from an IRA. The tax implications vary for each gift type.
Donations from IRAs
After age 70½, when you are subject to required minimum distributions (RMDs), a tax benefit can be gained by satisfying all or part of your RMD by making a Qualified Charitable Distribution (QCD) to a charity. The distribution goes directly to the charity. It counts toward your RMD amount and is excluded from your adjusted gross income for tax purposes. The QCD amount may not be taken as a charitable deduction because it has already been excluded from your income.
These gifts are recognized as charitable donations and can be taken as itemized deductions on your tax return. The tax benefits of cash donations have become limited, since a benefit is only realized once your total deductions exceed the new higher standard deduction thresholds.
Appreciated Shares of Stock
A donation can be made by transferring ownership of stock to the charity’s brokerage account, rather than selling the stock and donating the proceeds. The donor avoids taxation on the gains and the charity can sell the stock without a tax liability. The market value of the donated shares is tax deductible. This technique is only beneficial once your taxable income exceeds the threshold of $77,400 married filing jointly ($38,700 for single filers), since below this level capital gains are not taxed.
FUTURE GIFTS are when charities are named in wills, trusts, and contracts today to receive their gift at some time in the future. In some instances, a current year charitable deduction can be taken for these future gifts.
Are you interested in learning more about how you can get involved in charitable giving?
Here are a few options you can discuss with your financial advisor:
Charities can be named in wills and trusts to receive a portion of your estate when you pass away. These gifts will not have an effect on your income taxes but may help reduce estate tax liability.
A donor-advised fund allows charitable donations to be made into the fund with tax deductions taken in the year of contribution. Investments grow tax free and the fund distributes donations to charities in future years. This strategy allows bundling a few years of donations into a single year for tax purposes, thereby exceeding the standard deduction threshold to gain a tax benefit. A further tax advantage can be gained by funding these trusts with the current gift of appreciated shares.
Trusts can be established to generate an income stream to the donor with the remainder going to the charity upon the death of the donor. A charitable deduction is generated at the time that the trust is funded based on the expected amount the charity will receive in the future. A further tax advantage can be gained by funding these trusts with the current gift of appreciated shares.