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Is now the right time to make a donation and save on taxes?

Here are 3 strategies to maximize your gift.



is it time to make a charitable gift



Good morning!

I hope you’re having a good week. Today I want to talk about a topic that’s near and dear to my heart, charitable giving. I’m going to show you three ways to give more to charity, while maximizing your tax benefit.


I love talking to clients about their favorite charities and the stories behind why they support them. I’ve found that charitable giving and volunteering is a window into what someone values.


I’ll take a second and plug a charity that I love. The St John Center is a day shelter for homeless men. They provide men with a safe space to spend the day out of the elements and a hot shower. Beyond that, they help guests navigate thing like housing, VA benefits, and Social Security. They do absolutely amazing work and if you ever want to volunteer, you’re welcome to work a shift with me.


Jeb



 

 TODAY IN 4 MINUTES OR LESS, YOU'LL LEARN:


  • 3 reasons that most charitable gifts fail


  • 3 Strategies for getting the most from your gift


  • The 2 articles that caught my eye this week



 

Now let’s talk about charitable giving.


I’ve worked with hundreds of clients and seen countless gifts. I see the same three mistakes over and over, so I think they’re worth mentioning here. Then I’ll show you how to sidestep these issues and get the most form your gifts.


  • Shotgun gifting is making donations without an overall strategy. This ends up being a large number of smaller gifts, which dilutes the overall effect.

  • Not being involved. If you’re making a major gift, you should work with the charity to ensure that your gift fits the needs of the charity. After the gift, you should stay involved so you can see the fruits of your donation.

  • Not considering the tax impact. Not all donations have the same tax implications. If you’re thinking of making a larger gift, you need to talk with your tax advisor about how to best structure the gift to get the most tax benefit.


Let’s talk more about how to structure gifts to get the maximum impact.


As I mentioned, not all gifts are taxed the same. I see many, many donors writing checks each year and this is rarely the best option to maximize your tax benefit.


I do need to mention that I do realize that tax benefits aren’t the main reason for most gifts. Instead most people give because they want to make an impact. The benefit to being tax aware in your giving is that you can increase the size of your gift when you’re not giving up a portion to the government.


So back to cash gifts. The issue here is that most people, particularly retirees, aren’t able to itemize their tax deductions. This could be an entire newsletter but in short, most folks don’t have enough deductions to justify anything other than the standard deduction. If you can’t itemize your deductions, you can’t deduct that donation.


So let’s talk about ways to give while still getting a tax benefit. Here are my three favorite strategies.


Option 1: Do you have a stock position in your portfolio that you’re afraid to touch because of the capital gains?


It might have been gifted stock that has a low carryover basis or maybe it was stock that you purchased while working for a previous employer. Either way, you’re currently sitting on potential capital gains taxes that you would rather avoid.


One solution to consider would be gifting the appreciated stock to charity. Gifting appreciated stock generally allows you to take a deduction for the fair market value of the stock while avoiding the capital gains taxes; the charity is then able to sell the stock for its full value.


You save money on taxes and your favorite charity receives more than if you had sold the stock and donated the proceeds. It’s a win-win!


Option 2: Are you over 73 and facing Required Minimum Distributions from your IRA?

Maybe your expenses are covered by pensions or Social Security income and you don’t want to pay taxes on the extra income from RMD’s. A Qualified Charitable Distribution (QCD) could be a great option.


A QCD allows you to donate the amount of your RMD directly to a charity rather than take it as income. This benefits you by excluding the RMD amount from your gross income, as well as keeping you from potentially being pushed into a higher tax bracket.


If you have an advisor, make sure they know you want the check to go directly to the charity. If the check is made out to you, then it won’t count as a QCD and you’ll be taxed on the withdrawal.


Option 3: Have you hear of gift bunching into a Donor Advised Fund (DAF)? 


Instead of making annual charitable donations, gift bunching involves contributing a larger amount in a single year to a DAF, which enables donors to exceed the standard deduction threshold and thus itemize their deductions in that year, potentially providing significant tax savings.


This fund acts as a charitable savings account, allowing donors to distribute the gifted funds to their chosen charities over time, at their own pace. This means, in the years they do not contribute to the DAF, they can still make charitable gifts from the fund, ensuring continuous support to their favorite charities.


Hence, gift bunching enables donors to optimize their tax deductions, maintain their charitable giving patterns, and add a level of strategic planning to their philanthropic activities.


There are many ways to give to charity, which makes it important to find the giving strategy which works best for you. Depending on the size of the gift, these decisions can make a large impact on the tax benefits available.


While giving is about much more than just tax benefits, being tax aware allows you the ability to maximize the impact of your charitable giving.



 


 Here’s what I’m reading





 

-Jeb


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