Charitable Giving: Holiday Spirit all year round

As a number of “Christmas in July” events popped up in Charlotte recently, I was feeling the holiday spirit and started thinking about plans for charitable giving this year. 

One of the ways we really enjoy helping our clients is with regard to charitable gifting in a tax efficient manner. It was very well said by Melinda French Gates that “Helping people doesn’t have to be an unsound financial strategy.” Below are some strategies that can be implemented throughout the year to give to qualified charities (as defined by the IRS under Section 501(c)(3)) in ways that also support your own financial plans and goals:

Highly appreciated stock directly to the charitable recipient

The idea behind gifting stock instead of just writing a check is that you receive the full value of the stock as a charitable deduction, but you also forgo paying tax on the appreciation within the stock holding. When considering how much to gift, you will want to work with your accountant or financial advisor to make sure that you don’t exceed AGI limitations in any particular tax year.

Highly appreciated stock to donor advised fund

The added benefit of this giving method is with regard to timing. The charitable deduction is taken in the year that the stock is contributed to the Donor Advised Fund, with the same benefit noted above of not paying tax on embedded gains. This can be particularly useful in years with high taxable income. Subsequent grants out to charitable recipients can be done over the course of several years. One important thing to keep in mind about grants from a donor advised fund is that they cannot be used to fulfill a pledge.

IRA funds directly to charity

This can be a good technique to use especially if you are no longer able to itemize deductions on your tax return. If you are at least 70 ½ years of age, you can make charitable distributions directly from your IRA/Inherited IRA. The amount of the distribution (up to $105,000 annually) that goes to charity, instead of being distributed to you, will be excluded from your taxable income. 

Further, if you are currently required to take RMDs but don’t necessarily need the income for cashflow, sending the distribution to charity directly from the IRA is even more beneficial, as the charitable distribution will reduce the taxable portion of the RMD.

The primary objective of charitable giving is to benefit causes you are passionate about, and if you are able to leverage tax efficient ways to do so, you put yourself in a good position to continue to share your wealth with those who need it most.