By Patricia Fong, JD, CTFA, CAP®

 

SUMMARY: 

Charitable giving is a great way to help save on income taxes, maximize your impact on a charitable legacy you hold dear to your heart, and potentially help minimize death taxes.

 

OUR PERSPECTIVE:

According to the Women’s Philanthropy Institute, their report found that giving to charity increased by 9.3% during the COVID pandemic. Giving is still a major component of most people’s financial plans but they’re taking note of doing it more strategically.

The following options can help match an individual’s giving strategy during his/her lifetime:

  1. Donate cash to charity with a check and itemize your deductions only if the total aggregate amount of your mortgage interest, property, state and local income taxes, and charity adds up to and exceeds your standard duction allowed for that year.
  2. Donate appreciated property such as stocks or bonds. This can provide additional savings on not having to pay capital gains. You are allowed an income tax deduction for the fair market value and avoid recognizing capital gains.
  3. Donate via qualified charitable distributions (QCDs). If you are receiving a required minimum distribution (RMD) from your Individual Retirement Account (IRA) and you are over 70.5 years old, consider having the administrator of your IRA transfer your RMD (up to $100k) directly to the charity of your choice. This strategy effectively reduces your taxable income and the QCD satisfies your RMD for the year.
  4. Stack your charitable gifts to make your donations count if you itemize. If you commit to giving about $12k per year but this is not enough to itemize, then gift up to $36k in one year to make it count. Then eliminate your gifting for the next two years.
  5. Consider a Donor-advised Fund (DAF). Donate to a DAF with $36k instead of directly to charities, and then request distributions to your favorite charities over the next 3 years from the DAF account. You receive a deduction in the first year as in strategy number 4, but allow the DAF account to pace out the distributions to your charities as quickly or as slowly as you like. You can even donate appreciated securities and avoid capital gains!
  6. The Secure Act 2.0 underwent some changes since it was passed into law. As of 2023, the law now allows one who is 70.5 to make an IRA QCD to a charitable gift annuity or a charitable remainder Trust (CRT). There are limitations but may be worth discussing as part of your overall financial plan.

Charitable giving may be useful in your personal situation. Be sure to talk with your advisor including your tax consultant to see what the best option or two may be for you.