Many of us haven’t even bought our Halloween candy yet. Nevertheless, it’s not too early to begin thinking about year-end charitable giving strategies that can provide the maximum benefit to your valued causes, as well as reducing the amount of the check you’ll write Uncle Sam, next April 15.
This is also the time of year when many are doing their tax planning, and especially for those who may be in a position to utilize itemized deductions, smart charitable giving alternatives offer an attractive means of “doing well by doing good.”
1. Qualified charitable distributions (QCDs)
If you’ve reached the point where you must take required minimum distributions (RMDs) from your traditional IRA, you have the option of donating as much as $100,000 in the form of a QCD, which is made with pre-tax assets. The distribution goes directly to the charity. It is not included in your taxable income, nor does it add to your adjusted gross income (AGI).
2. Directly donate appreciated securities or other property
Especially if you have a concentrated position that may be tax-inefficient to unwind, donating the assets to charity can be beneficial to both the donor—in the form of avoiding capital gains taxes—and the charity, which can sell the assets and utilize the proceeds. The rules around donating appreciate property, as opposed to publicly traded securities, can be tricky, so be sure to consult with your tax advisor well in advance of making the donation.
3. “Double-up” for higher-income years
If you anticipate having more taxable income this year, you may want to clump two years’ worth of donations into a single year. Persons who use donor-advised funds (DAFs) can utilize this strategy particularly effectively, since the donated assets can be “parked” in the DAF until the donor determines how the DAF should direct various portions of the gift. DAFs can also hold assets in various forms, whether cash, securities, or even, in some cases, cryptocurrency.
4. Donate proceeds from the sale of depreciated securities
Sometimes, you win by losing. Securities that have fallen in value below their cost basis can provide opportunities for tax-loss harvesting; losses on the sale of such securities can offset gains in other parts of the portfolio and reduce capital gains tax liability. They can also be used to offset up to $3,000 of ordinary income. But that’s not all. If you then donate the cash from the sale to charity, you can also acquire a charitable deduction, potentially leveraging the loss into a “triple reduction” of your tax bill.
5. Coordinate charitable gifts to lower the cost of a Roth conversion
When owners of traditional IRAs or 401K accounts convert to Roth accounts, they must pay taxes on the converted assets, since they represent pre-tax dollars (Roth accounts are funded with post-tax dollars). But it is possible to carefully coordinate charitable gifting in years when a Roth conversion is contemplated in order to reduce the overall tax impact of making the conversion. Here again, however, it is important to consult with your tax advisor and plan well in advance.
At Griffin Black, we specialize in helping clients develop tax-efficient strategies for enhancing portfolio growth while meeting important philanthropic goals. Learn more about how we help investors manage their “Dynamic Wealth Journey.”
