Examining Two Simple Charitable Contribution Strategies

As actively engaged forest landowners, many of us share common values that are reinforced via our participation and contributions to the Forest Landowners Association. Given that we all strive to see private land ownership remain a viable option for future generations, supporting institutions that support this common interest often remains a priority when considering our annual charitable gifting options.

If you have made charitable donations in the past, you are most likely already aware of some of the gifting strategies that are available to you and your family. Two of the charitable gifting strategies that I see utilized most frequently are:

1. The donation of appreciated securities.
2. The use of qualified charitable distributions (QCD’s) from qualified accounts such as individual retirement accounts (IRA’s).

Donation of Appreciated Securities.

Often considered one the most tax-aware methods for making charitable contributions, this strategy has several benefits worth considering:

• Provided the securities have been held for more than 1 year and a day, payment of capital gains tax on the donated securities is avoided in full. Capital gains tax rates can range from 15% to 23.8% depending on the income and filing status of the taxpayer subject to the capital gain.
• Avoiding capital gains tax can allow you to maximize the size of both your contribution and the tax benefit relative to making an outright cash donation. Here is a hypothetical example for illustration purposes only:

* Assumes original cost basis of $5000.
** Federal Income Tax Bracket, 25%; State Income Tax Bracket, 6%.
*** Federal Long- Capital Gains Tax Rate, 15%; State Long-Term Capital Gains Rate, 6%.

• Given the recent tax law changes, it is advisable to check with your tax advisor to see if your ability to realize a specific tax benefit from charitable gifting remains a relevant option in light of changes to the standard deduction limits.
• Many investors have shares of securities that they wish to hold long-term. Considering the donation of such a security could potentially reduce future capital gains if you donate the security you wish to hold long-term and then purchase additional shares in the security to reset your cost basis at the current, higher price. Provided long-term capital gains tax rates remain the same or increase in the future, this will reduce your future capital gains tax exposure if the stock continues to appreciate in value in the future.
• The donation of appreciated stock is a commonly accepted form of in-kind contribution accepted by most charitable organizations. The process to complete a donation of appreciated securities is a simple, transparent process that is easily completed on behalf of the donor.

Qualified Charitable Distribution (QCD)

A QCD is a direct transfer of funds from your individual retirement account (IRA) custodian, payable to a qualified charity. Some of the benefits of utilizing this strategy are:

• For those 70 ½ or older who are required to take a required minimum distribution (RMD) for the year, QCD’s can be counted toward satisfying the annual RMD requirement, provided certain guidelines are met.
• A QCD also enables the donor to exclude the amount donated from taxable income, unlike withdrawals from non-Roth IRA accounts. This could prove to be valuable for certain individuals in helping to keep taxable income as low as possible in an effort to potentially reduce the impact of certain tax deductions and credits, including both Social Security and Medicare.
• QCD’s do not require that you itemize deductions on your federal tax return, enabling some to take advantage of the higher standard deduction whiles using a QCD for charitable giving purposes.

While many IRA account types can use this strategy, there are some requirements that need to be met:

• You must be 70 ½ or older to be eligible to make a QCD.
• QCD’s are limited to the amount that would otherwise be taxed as ordinary income. This excludes non-deductible contributions.
• QCD contributions are limited to $100,000 annually and can be spread across as many qualified charities as desired in a calendar year. If you file jointly, your spouse can also make a QCD up to the $100,000 maximum within the same tax year.
• To count for the current year required minimum distribution, the funds must be distributed by the general RMD deadline of December 31^st.

Consulting with a tax advisor can help you determine if both your IRA and the charitable institution qualify for qualified charitable distributions.

Before considering making any type of charitable contribution, it is always important to consult with your tax advisors to ensure that you are utilizing a strategy that is appropriate for your unique financial situation and long-term goals.

Jim Gillis IV is a 6^th generation forest landowner specializing in working with forest landowners as a financial advisor at Carson Advisory, Inc in Athens, GA. Raymond James is not affiliated with the Forest Landowners Association.