Make a Difference in the Lives of Others and Enjoy Tax Benefits, Too
As we approach the end of the year, many people are looking for meaningful ways to give back. In fact, 73% of Americans have donated to charity in the last year, and 25% plan to increase their contributions this year.[1] Thankfully, there are several effective charitable strategies that can help make a difference in the lives of others as well as provide helpful tax benefits to you. If you want to give back to causes you care about in a tax-efficient way, consider these 5 year-end charitable gifting strategies.
[1] Percentage of Americans Donating to Charity at New Low (gallup.com)
Charitable Gifting Strategy 1. Bunched Donations
The Tax Cuts and Jobs Act increased the standard deduction significantly as a way to reduce the number of taxpayers who itemize their deductions. Though this is convenient, it does make it more difficult to benefit from itemized deductions like charitable deductions. In 2022, the standard deduction is $12,950 for single taxpayers and $25,900 for married couples, meaning any charitable deductions would have to be over this threshold to make itemizing worth it.
If your current charitable deductions are below the standard deduction threshold, consider “bunching” multiple years’ worth of charitable contributions into one tax year. By doing so, you can itemize your deductions in one year and take the standard deduction in subsequent years which contributes to your overall tax efficiency.
Charitable Gifting Strategy 2. Donate Appreciated Assets Other than Cash
Another way to potentially maximize your charitable contributions and minimize your tax liability is to donate highly appreciated assets that have been held longer than one year. Generally, these assets would avoid capital gains tax if donated as opposed to sold first and the proceeds donated.
Not only can this increase the overall donation amount that goes to the charity, but it can also increase your charitable tax deduction. This strategy can be used with a number of non-cash assets, including:
- Publicly traded securities
- Real estate
- Privately held business interests
Keep in mind that certain donations will require an appraisal before the charitable deduction can be accepted. Working with a financial professional can help make sure you are getting the most out of your donation.
Charitable Gifting Strategy 3. Consider Donor-Advised Funds
If you know you want to contribute to charity this year, but you’re not sure which charity or charities to choose, a donor-advised fund (DAF) may be the right choice for you. In this case, you would make a charitable contribution to the fund by December 31st. Depending on how much you contribute, it could qualify for a current year’s charitable deduction.
The best part is the money you contribute will be invested with the DAF and you can take your time developing a strategy for which charities ultimately receive your donation. Those who are unsure of where to direct their philanthropy no longer have to miss out on valuable tax benefits as they take their time to decide.
Charitable Gifting Strategy 4. Utilize Qualified Charitable Distributions
Qualified charitable distributions (QCDs) are another charitable strategy that allows donors to direct up to $100,000 from a traditional IRA to a qualifying charity. In order to utilize this strategy, you must be at least 70 ½ years old. QCDs count toward your required minimum distributions and are not considered taxable income.
If you have a large RMD due that you do not necessarily need to cover expenses, utilizing a QCD can be a way to donate to a worthy cause while also reducing your overall tax liability. The $100,000 limit applies per person, meaning a married couple can effectively donate up to $200,000 per year.
Charitable Gifting Strategy 5. Set Up a Charitable Remainder Trust
Though not for everyone, a charitable remainder trust can be useful if you have significant assets and a desire to leave a portion of your estate to charity. A CRT is an irrevocable trust that can provide a stream of income and current-year tax benefits.
Here’s how it works. The grantor contributes highly appreciated or income-producing assets to the trust and names a beneficiary to receive the income for a set period of time. The grantor can name themselves or someone else as the beneficiary. After the period has passed, the remaining trust assets will automatically pass to a charity of choice. And because the ultimate beneficiary of the assets is a charity, the grantor will receive a charitable tax deduction at the time the trust is funded.
CRTs are complex so we strongly encourage engaging an estate attorney to set it up.
Do You Need Help with Your Charitable Gifting Strategy?
Are you looking for ways to maximize your charitable impact while reducing your tax liability? At Aviance Capital Partners, we believe that working with a qualified financial planner is a great first step charitable gifting strategy. As the year winds down, we are here to help you make the most of your philanthropy and give back in ways that are meaningful to you. To learn more about how we can help, reach out to us at wealthrelations@aviancepartners.com, or click here to schedule a complimentary meeting.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. The tax and estate planning information provided is general in nature, which should not be construed as specific financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597.
