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Year-End Strategies For Charitable Giving

Making charitable donations allows you to reduce your tax bill and year end is a good time to review this. Here are three effective strategies:

  1. Make charitable gifts directly from your IRA. You must be at least 70 ½. Rather than taking cash out of your IRA which is taxed as ordinary income, you can make a direct transfer to the charities of your choice and the entire distribution is non-taxable. This does not limit your ability to take personal distributions.
  2. Make charitable gifts of appreciated property, particularly appreciated marketable securities. With the stock market at an all-time high, higher taxes on long-term capital gains, and the possibility of tax reform to lower rates or to eliminate some deductions, now is a good time to look at this strategy.For example, shares worth $10,000 with an original cost of $5,000, if sold, have a $5,000 taxable capital gain.If you sell the shares and also make a $10,000 cash charitable donation, tax is paid on the $5,000 gain and you get a tax deduction of $10,000 for the contribution.A gift of appreciated stock made directly to a charity provides a tax deduction equal to the current fair market value of the stock, in this case $10,000. Any appreciation on the stock escapes taxation (e.g., no capital gain).Anyone with substantially appreciated investments (securities generating large long term capital gains if sold) or other appreciated property who also makes large charitable donations should review this strategy. There are rules and special limits that must be followed. The property must have “long term” capital gains; short term capital gain property does not provide these benefits. The overall deduction limits are generally 30% of gross income rather than 50% for cash donations. There is additional documentation and tax reporting but, the tax savings can be significant.
  3. Large gifts – Donor Advised Funds (DAF). What if you want to make a large charitable gift now, but want to benefit many organizations at different times later on? A DAF allows this. These funds are maintained by large investment firms, community foundations and other public charities such as schools and charitable organizations. A DAF is a place to “park” funds for future charitable giving. It is like a private foundation, but on a smaller scale with less administration and cost.Anyone can easily open a donor advised fund. The DAF itself is a qualifying public charity that accepts gifts of cash and marketable securities. The donor gets a current deduction for all gifts made to the DAF. The donor can then direct gifts from the fund to other public charities at any time. A gift to a DAF remains invested until the donor requests a transfer to another public charity.This is also a good way to benefit your community. A DAF established with a local community fund such as the Columbus Foundation or Greater Cincinnati Foundation allows the donor to support the community with funds supporting local endeavors. Some of the management fees are returned to the community with grants provided to local charitable organizations and the funds also offer professional investment management.  If you are interested in any of these tax-saving strategies or want to see how they may benefit you, please contact your GBQ tax practitioner.

Note: A future transfer from the DAF to another charity selected by the donor cannot be to satisfy a pledge, or to attend a party or fundraising event, and cannot be made to an individual person.

Article written by:
Paul Gaffney
Tax Director

Contact
  • Paul Gaffney
  • Director, Tax & Business Advisory Services
  • (513) 871-3033
  • pgaffney@gbq.com