Charitable giving strategies

Why cash should almost always be the last option

For those that are inclined to give, the landscape has changed dramatically in a relatively short period of time. It’s an opportune time to revisit available giving strategies if you want to give and maintain the tax benefits still available. The ways you gave in the past may no longer be to your advantage if minimizing your income taxes is a priority.

We all receive requests for donations from various charities throughout the year. While it might be easier to write a check or use a credit card number (the miles are nice), the fact is that giving in this manner may not be in your best interest. You should be aware of the other options available to you.

One outcome of the Tax Cuts and Jobs Act of 2018 is that far fewer taxpayers will be itemizing their deductions. The standard deduction is now higher and thus the tax benefit of giving for many taxpayers has changed. In the past, most homeowner’s and high earners were able to itemize their deductions, and in so doing, deduct even modest charitable gifts from their income taxes. However, the standard deduction has risen to $12,000 for an individual and $24,000 for a married couple filing jointly. You should consult with your tax preparer to find out whether you will be able to itemize your deductions this tax year. If you are one of many who will no longer be itemizing, there are still solutions available:

1. Qualified Charitable Distribution (QCD) from an IRA applies to taxpayers over 72 years of age who have already begun receiving their annual required minimum distribution (RMD), this is likely the most advantageous option. Every dollar that is distributed from your IRA to you counts as ordinary income subject to your marginal income tax rate. The IRS allows Qualified Charitable Distributions (QCDs) directly from your IRA to eligible charitable institutions. Any amount given by QCD will not count as income on your tax return, keeping your Adjusted Gross Income down. This helps with income taxes and can also with Medicare premium levels. There is an annual limit of $100,000 in QCDs that can be made, and there are strict rules to ensure that any QCDs are made payable directly to the charity in question. Contact your advisor or IRA custodian for more details.

2. Donation Bunching is the concept of concentrating several years of giving into one in to maximize the itemized deduction for the gifts. For example, if you tend to give $5,000 per year to charity, in any given year your itemized deductions may not exceed the standard deduction, effectively stripping the tax benefit of the annual donation. Instead, by “bunching” the donations and making $25,000 donations every five years, you will realize the tax benefit that would have otherwise been lost.
3. Donor Advised Fund is a charitably focused account that is made available through most custodians, including Charles Schwab and Fidelity. These accounts are earmarked for charitable causes and allow a donor to make a one-time donation into the account and then dole out the funds over time at their discretion. The custodian will qualify each donation to make sure they are given directly to a qualifying charity, and the donor can take their time in making gifts to causes of meaning without feeling the pinch of giving large amounts in one year to lock in the tax benefits. Please reach out to us with any questions about donor advised funds and how they can be leveraged.  
4. Private Foundations can be viable options for family’s whose level of giving is considerable. A charitable entity can be created with the express purpose of making charitable grants. Family members can hold positions on the foundation and create continuity for its mission to continue with the next generation.

5. Appreciated Stock refers to shares of companies that you own that have unrealized gains. These shares have often been held for years or decades. Often, the tax impact of selling highly appreciated shares is a deterrent and either holding the shares or gifting them is the only viable strategy. These shares are a great asset to donate. The market value can be used as a tax deduction and any unrealized gains never impact the donor’s tax return. Appreciated stock can be given directly to most organizations by direct transfer, or shares can be donated into a donor advised fund, Private Foundation, or charitable lead or remainder trust. The concept of bunching these donations would be most effective for tax planning purposes.   

6. Collectibles can also be a viable giving alternative. The tax rates on sales of collectibles are higher than for long-term capital gains, so there is a tax incentive to give collectibles if one is so inclined. Collectibles, depending on the type, tend to be a relatively illiquid market. Making a sale can be a lengthy and cumbersome process. As well, the actual price realized on a sale of a collectible can be well below an appraised market value. When donating, a tax deduction will generally be based directly on a qualified appraisal. Many donor advised funds do accept collectibles, so please be sure to contact your advisor to discuss this strategy.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by WBH Advisory, Inc. [“WBH”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from WBH.  Please remember that if you are a WBH client, it remains your responsibility to advise WBH, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. WBH is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the WBH’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.wbhadvisory.com. Please Note: WBH does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WBH’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Also Note: IF you are a WBH client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.