Three ways to make the most of your 2021 Charitable Contributions

11-22-2021Tax Information

Many Americans wish to help out their communities and favorite charities through end of year financial support.  Are you able to do it more efficiently?

The easiest was to give is through a check or electronic giving portal.  Cash comes right out of your bank account.  Here are three fairly simple strategies to consider.

Appreciated Investments

Considering the stock market’s solid 10-year run, you may want to instead consider gifting appreciated securities.  You can simultaneous (1) give to charity, (2) eliminate a tax burden, (3) reduce your investment exposure risk, and (4) save cash.

For example, if you donate $5,000 in appreciated securities (that originally cost you $2,000), you get a $5,000 charitable deduction and avoid capital gains tax on the $3,000 profit.  If you sold the securities and paid 15% capital gains tax of $450, you would only have $4,550 of cash available for the charity.  A qualified charity avoids all income taxes when it sells the donated investment.  It is a win-win.

Donor Advised Funds

Another strategy for a seasoned donor is gifting securities through a Donor Advised Fund.  This is a charitable giving account that allows a donor to invest, grow and give assets.  These funds are available through various Community Foundations, Non-Profit Organizations and Brokerage houses.

You get an immediate tax deduction once the DAF is funded – regardless of when you send or “grant” the money to the charities.  You distribution donations when you are ready.  For example, you donation $25,000 to your DAF, that amount can be gifted in full to one charity or separated to multiple charities.  The donations can be made over the course of several years.

With the increased standard deduction, savvy individuals make two years’ worth of charitable donations in one year and use an itemized deduction.  Half of the funds are disbursed to charities in that year and half are disbursed to charities in the following year (while a standard deduction is utilized for income tax purposes).

Required Minimum Distributions (RMD)

I think all individuals who are at least 70 ½ years old and give to charities should use a Qualified Charitable Distribution (QCD).  Your charity benefits, you avoid income tax on the distribution and it reduces your income for determining your Medicare premium in future years.

The donor instructs their retirement account to send funds directly to a qualified charitable organization.  (There is a $100,000 annual limit.).  The retirement administrator sends a contribution to your charity on your behalf.