Year end is often a time when individuals and families complete their charitable giving for the year. As you consider how much you’d like to give and who to give to, you should also consider the efficiency in which these donations are made. Depending on your financial situation, there may be ways to complete your donations in a manner that benefits both you and the charity.
The most common way to make donations is by cash or check. However, donating appreciated stocks, bonds, mutual funds, real estate and other assets outside of qualified retirement accounts has become increasingly popular. If the asset has been held for more than a year (rules vary for real estate) at the time of donation, the donor can claim an itemized deduction in the amount of the fair market value of the asset (up to 30% of AGI). In addition, the donor gets the advantage of not having to recognize the capital gains tax that would have been incurred upon the sale of the asset. Therefore, you are able to donate the same amount while not experiencing a tax bill.
Charitable donations (or larger than normal donations) often make sense for those experiencing large taxable events in the current year. Making donations can help offset the unusually high tax burden while simultaneously contributing to causes you care about. Some of the following are common scenarios where you might have a larger than normal tax bill:
1.) Donor Advised Fund
A donor advised fund (DAF) is like an investment account geared towards making donations to the organizations you care about. Donor advised funds can be relatively inexpensive to setup, and often allow for immediate deductions on the donation of cash, securities, business interests, real estate, etc. The funds can be invested (or remain invested) to grow tax free until you are ready to make your donations. DAFs have become increasingly popular for those who are charitably inclined and want to use appreciated assets for tax efficient giving.
2.) Qualified Charitable Distributions
As stated previously, QCDs are a great vehicle to make charitable donations while saving on taxes for those taking Required Minimum Distributions (RMDs).
Gifting strategies, and their feasibility, vary greatly from person to person, and family to family. Connect with your accountant and financial advisor to help determine if the options and strategies listed above make sense for your specific situation. Please reach out to anyone on the Abbey Street team if you’d like to learn more.
To learn more about charitable giving visit: https://www.schwabcharitable.org/giving-2023?bmac=uum&gclid=Cj0KCQjwtJKqBhCaARIsAN_yS_kMr2GR2hGu30w11avEykHsqNqXofFM5dfrTuTTeuwju0zLngPyp6EaAj_fEALw_wcB
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Eric Schierhorn is a Private Wealth Advisor at Abbey Street and is uniquely skilled in our financial planning technology. Eric holds a Certified Financial PlannerTM designation and supports the Private Wealth Management team.
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