Charitable Giving: Advanced Strategies

kevin rigg | director of financial life planning

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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charitable organizations directly from their IRA without the donation amount being counted as taxable income when it is withdrawn.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.