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Create a Tax-Beneficial Charitable Gift Plan for 2022
The new year brings new opportunities to support those charitable 501(c)(3) organizations you feel passionate about. Before making your first contribution of the year, create a plan so your gifts are meaningful and, when possible, reduce current or future taxes.
What causes do you want to benefit? Think about the positive change you want to make through your charitable gifts. Do you want to create a family charitable activity? Meet a current and specific need? Donate in memory of someone special? Help treat a root cause, or help alleviate the symptoms? If you make charitable contributions, your financial plan should include strategies for gifting and reflect the causes that are most important to you.
Build an overall gifting strategy that also is tax efficient. Once you establish which charities you want to support, determine how to make your contribution, what assets to gift, and which tax benefits you may receive (if any). Regardless of which charity you plan to support, there are several strategies to consider:
- Make a qualified charitable distribution (QCD) – A QCD is a distribution directly from your individual retirement account to a qualified charity. You must be age 70 and a half or older to be eligible to make a QCD, and the donated amount (up to $100,000 per year) is excluded from your taxable income.
- Gift appreciated stock – It generally is more tax-efficient to give appreciated securities you’ve owned more than one year than it is to write a check. If you have a portfolio with stocks and/or mutual funds in a taxable account, e.g., individual, joint, or trust account, some of your investments may have increased in value since your initial purchase. For example, if you paid $10 a share and the investment is now worth $20 a share, you have capital appreciation. If you choose to gift this investment to charity, you may get a tax deduction based on the full amount of the gift and may eliminate owing capital gains tax on the appreciation of that investment.
- Use a donor-advised fund (DAF) – A DAF is like a charitable investment account. When you make a contribution, you are generally eligible to take a tax deduction for the calendar year. You can support any qualified public charity with grant recommendations from your DAF. It also simplifies your record-keeping. DAFs are among the easiest and most tax-advantaged ways to give to charities. Here are some additional benefits:
- If you make many smaller gifts to charities and do not want to gift small amounts of appreciated stock multiple times, consider using a DAF. You can make one annual gift of an appreciated asset to the DAF and then grant those gifts from the DAF by check directly to the charities throughout the year.
- You may experience a significant tax event, e.g., selling a business or receiving a large bonus, in a given year and want to make a one-time larger charitable donation for the tax benefit. A DAF allows you to receive the tax benefit in the year you gifted to the fund. Then, as opportunities arise, you can grant to charities from the DAF in future years.
- You might want to consider charitable bunching, which involves grouping two years or more of your charitable gifts into a single year to exceed the itemization threshold (in other years, take the standard deduction). By placing those charity funds into a DAF, you create a pool of funds to continue your regular monthly or annual donations in a tax-efficient way. For example, if you normally give $10,000 per year to charities, you might consider gifting $30,000 every three years to your DAF and then using the DAF to continue gifts to your charities in the amount of $10,000 each year.
- If you want to create a family philanthropic legacy, consider gifting to a DAF and using it as a tool to engage and teach your children or grandchildren to look for opportunities to help others. For example, you could allot a certain amount of the fund to each family member and have each one present to the family “board” on why that donation should be made. Other family members also can contribute to the DAF.
Other types of assets and many other gifting strategies can be considered. We recommend that you consult with your financial advisor and CPA to help determine the best strategy for your unique situation. For more information, contact your BKD Private Client trusted advisor or submit the Contact Us form below.
FORVIS Private Client services may include investment advisory services provided by FORVIS Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by FORVIS, LLP. The information in this presentation should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies, mentioned in this presentation may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax, or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.