kevin rigg | director of financial life planning
Donating appreciated securities is a very valuable giving strategy as it can produce double tax savings.
For example, assume you held a mutual fund worth $10,000 with a cost basis of $5,000. If you sell the fund and donate the $10,000 proceeds to a charity, you would need to report the $5,000 gain on your tax return, effectively reducing the tax benefit of the contribution.
Alternatively, you could give the mutual fund shares directly to the charity, take the $10,000 charitable tax deduction and avoid paying tax on the gain (the gain will be avoided altogether as a qualified charitable organization does not have to pay income tax).
Keep in mind that these types of donations are subject to a 30% AGI limitation (not the normal 60%).
“Bunching” charitable deductions is a strategy being used more frequently thanks to the new, higher standard deduction limits. This is especially attractive for those taxpayers that have total itemized deductions just below the new limits.
For example, assume a married couple has $24,000 of itemized deductions (just below the $24,400 standard deduction) and $10,000 of those itemized deductions are charitable contributions.
The couple could choose to pull forward next year’s giving of $10,000 into the current year and “bunch” the deductions (total of $20,000) to get over the standard deduction. They could continue to do this in alternating years in order to maximize their tax deductions over time.
If you would prefer not to give to charities in such an uneven fashion, or need more time to decide who to make the contributions to, then consider a Donor Advised Fund (DAF). A DAF is a very flexible account that allows for an immediate tax deduction for a contribution while disbursements to charities can be made at a future date of your choosing.
A Qualified Charitable Deduction (QCD) allows individuals who are 70 1/2 years old to donate up to $100,000 to charitable organizations directly from their IRA without the donation amount being counted as taxable income when it is withdrawn.
QCDs can be counted toward satisfying the required minimum distributions (RMDs) for the year.
QCDs don't require that you itemize, which due to the recent tax law changes, means you may decide to take advantage of the higher standard deduction, but still use a QCD for charitable giving.