W ITH THE END of the year approaching, our thoughts inevitably turn toward enjoying the holidays. It’s the season of giving, which often includes charitable donations prior to the end of the year in addition to presents for family and friends. While philanthropy revolves around doing good for worthy nonprofit organizations, it’s no secret there can also be financial and tax benefits. With significant changes to the tax code in recent years and looming in the future, it’s an ideal time to think about your giving strategy. “A lot of planners lead with the tax benefits, but, for me, it’s most important to understand a client’s history of past giving and charitable intent,” says Amy Moraczewski, senior wealth planner at Zions Bancorporation. “We often discover that clients are making cash contributions to individual charities when they could potentially capture additional tax benefits by fairly easily implementing some slightly more complex strategies.” Here are a few common strategies to consider while discussing further with your financial planner or wealth management advisor.
helpful strategy once you’re 72 and subject to required minimum distributions.
STRATEGY #3: Create a donor-advised fund
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Donor-advised funds have grown in popularity in recent years, due to several advantages over private foundations. Whereas a private foundation can be complex and expensive to establish and operate — with steep penalties for failing to meet requirements — a donor-advised fund is a much more flexible way to set up a legacy. In simple terms, you contribute assets to the fund, where they can be invested, typically without annual distribution requirements. You can either let the value grow tax-free, set up recurring annual or monthly contributions to organizations you care about or make occasional one-time grant requests.
STRATEGY #4: Bunch your charitable
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contributions In December 2017, the Tax Cuts and Jobs Act roughly doubled the standard deduction, making it a better option than itemizing deductions for many taxpayers. A side effect was that fewer people were able to claim charitable deductions — although the CARES Act now allows married joint filers claiming the standard deduction to deduct up to $600 in cash contributions this year. One strategy that can help is bunching contributions: taking the standard deduction one year and then itemizing in the next. Donor-advised funds can be useful here, claiming a deduction at the time of contribution, while distributing the funds over multiple years.
STRATEGY #1: Donate appreciated stock
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According to Moraczewski, with the stock market at all-time highs, giving appreciated stock held for at least one year can be a savvy move: The deduction is equal to the fair market value of the stock on the date of the donation. “Donating a stock that has gone up in value could prevent you from getting hit with capital gains taxes — and allow you to contribute more to the charity without reducing your own liquidity,” she said.
STRATEGY #5: Donate up to 100% of your
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adjusted gross income With the passing of the CARES Act, you can donate up to 100% of your adjusted gross income (AGI) to qualified charities in 2021 — a significant increase from the previous 60% limitation. Although this may not be viable for the majority of people who need their income to live on, it can be beneficial for reducing income tax liability in unique circumstances, such as someone who has an abnormally high-income year from selling investment real estate or a business.
STRATEGY #2: Make qualified charitable
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distributions If you’re age 70-and-a-half or older, you can donate up to $100,000 a year directly from your traditional IRA to a public charity. Since a qualified charitable distribution is not included in your adjustable gross income for the year, it can result in a greater tax benefit than claiming a charitable deduction. It can be an especially
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