Thursday, February 22, 2024

Ways to Give

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By Jeff Rotherham, CFP®, MSAFP

During the holiday season some of us begin to get into the giving spirit. And why not? If you are blessed enough to have had good fortune, and have the desire, giving to a good cause has been shown to produce happiness and probably brightens the day for those receiving. Now, you are two for two if you are giving, helping those in need while producing a warm glow within. But, can we go three for three? On top of helping others and feeling good let us also add a dash of tax savings. When it comes to charitable donations a bit of planning before the end of year can go a long way. As the old saying goes, “an ounce of prevention is a worth a pound of cure.” If you are having a banner year in regards to income or are just feeling generous here are a few ways to maximize your giving and hit a “three-pointer” as discussed above.

Give shares of highly appreciated securities

A friend of mine was recently approached about making a donation to a cause he felt was worthy. The only problem was he was bit short on cash and the company stock he possessed was steeped in capital gains. No problem. He can give his highly appreciated securities. How does this work? Let us say you bought some stock several years ago and since have developed a sizable gain you would be taxed on if you sold. Instead of giving cash to your favorite charity you could instead give a few shares of stock. For example, if you paid $10 per share and the stock is now worth $60 per share you would have a $50 taxable gain in that stock if you sold it and then gave the cash to your favorite charity. If you gave 10 shares of stock directly to the charity, you would get a charitable deduction of $600 and have NO capital gains on those 10 shares. Naturally, consult with your tax professional for the details of your particular situation.

Give tax-deferred retirement assets (Qualified Charitable Distribution Rule)

Some of the most generous people I know have attained the golden age of 70.5.  Being that they have reached this milestone they are now obligated to take Required Minimum Distributions (RMDs) from their retirement accounts. In the past, I have seen people take their RMD, pay the taxes, and then give what was left over to a favorite charity. However, there is a way to get a little more bang for your buck by giving away the full RMD to a qualified charity. Not only do you not have to pay the taxes on the distribution, but the qualified charity receives a higher donation.

Donor Advised Fund (DAF)

Another justifiably popular vehicle is a Donor Advised Fund (DAF).  What is a DAF and how do they work? A DAF is a charitable vehicle that any person can create, and fund. When you set up a DAF you can call it almost anything you want. For instance, one might name a DAF, The Jones Family Charitable Gift Fund. When monies are gifted to a DAF they are considered an irrevocable gift and provide a charitable tax deduction at the time of the transfer. This can work great for the person who desires to be charitable but has not yet decided on which organizations they wish to give. Simply contribute to a DAF and make those gifting decisions later.  A DAF can also be a great option when you have a significant tax event looming. Perhaps you sold a highly appreciated stock or a piece of property? That situation could present an ideal time to contribute some (or all) of the assets to a DAF, enabling a tax break, while maintaining control of when you contribute to the charity of your choice.

We are fast approaching the end of the year when it can be beneficial to make charitable gifts to receive a tax deduction. Perhaps the techniques mentioned above could help you play a role in making a difference in the world.



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