Revisiting Some Smart Strategies for Year-end Gifting
I have written many times in this space about what a useful tool a Donor Advised Fund can be in one’s portfolio. However, a recent conversation I had with a client made me realize that it has been some time since the last one Finer Things - May 2016.
As we enter the fourth quarter of the calendar, I thought it would be useful to provide a refresher on a couple of efficient and effective gifting strategies we utilize to 1) reduce taxes, 2) deliver charitable gifts smartly, and 3) help clients simplify their lives.
- Using Qualified Charitable Distributions to Meet RMDs
If you have attained the age where you need to take Required Minimum Distributions from your IRA (or you are over 70 ½), you have the ability to donate up to $105,000 (per person) to a qualified 501(c)3 charitable organization and not pay income tax on any of that distributed amount. For many who no longer itemize their taxes due to the higher standard deduction, this is a very practical way to reduce your taxable income and provide for causes that are near and dear to your heart.
- Donating Appreciated Securities to a Donor Advised Fund (DAF)
We have many clients, myself included, who want to make an impact with their gifting and have set up DAFs due to their ability to streamline the gifting process, mitigate their tax bill, and potentially create a legacy.
A DAF allows you to make contributions when it makes the most sense for your specific situation, be eligible to take an immediate tax deduction, invest the assets to potentially grow tax-free, and then make grant recommendations on your own timetable for distributing the funds to other qualified charitable organizations.
Tax related benefits include:
- When making donations using appreciated assets held longer than one year, you avoid any capital gains taxes that would be associated with an actual sale versus the transfer into a DAF.
- You can reduce future tax burden for heirs by making a DAF a beneficiary of your IRA or annuity. Essentially, assets are removed from estate and gift tax consideration, offering tremendous tax advantages.
- A change in the tax law in 2018 nearly doubled the minimum standard deduction – and you can only deduct charitable contributions if you itemize. But by “bunching” your gifts for the next several years into one year, you can more easily exceed the higher standard deduction. In particular, business owners may like the idea of bunching/giving into a donor advised fund to help offset the gains from the sale of their business, or other large taxable events (like a Roth IRA conversion).
The piece linked below covers these strategies in more detail and offers clear examples of how they work. We strive to simplify your financial lives in a variety of ways and encourage you to leverage these simple strategies to make the most of your generosity!
Please reach out if you have any questions or would like to discuss how these strategies can help make your giving more impactful.
-Gary Weiss, October 2024
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters.
