During the Holiday Season, the spirit of giving can shine brighter than any other time of the year. Most of us support different charitable organizations with the gift of time, money or both! Our gifts, whether large or small, can have a tremendous impact on our community. The business of giving has grown quite large. In 2018, Americans gave over $427.71 billion in dollars to charity.1 That is a significant transfer of wealth every year. Gifts to charity can have enhanced financial benefits to the donor, as well if you consider utilizing one of these three strategies for giving.
BUNCHING GIFTS: THIS STRATEGY INVOLVES GIVING SEVERAL YEARS OF GIFTS AT ONE TIME TO MAXIMIZE YOUR TAX DEDUCTION.
When the Tax Cuts and Jobs Act was signed into law, it simplified many complicated areas of our previous tax code. One of which was to increase the standard deduction for taxpayers and eliminate the many itemized deductions that were available. This impacts your charitable deduction on gifts because if you are not in the position where your tax deductions are over the standard amount, (Married: $24,400, Single: $12,200) you will just elect the standard deduction on your tax return regardless if you made any charitable gifts or not. Bunching is a strategy in which you gift multiple years of contributions at one time to surpass the standard deduction and take your charitable contributions as a tax deduction on your return.
GIFTING APPRECIATED SECURITIES: THIS STRATEGY IS TO GIFT SECURITIES WITH A LOW-COST BASIS DIRECTLY TO CHARITY.
After a 10-year rise in the stock markets, investors may hold stocks that have appreciated significantly since they were purchased. Rather than sell the stock and pay the capital gains tax, which can be as high as 23.8% for taxpayers in the top tax bracket, gift the shares directly to a charity. This accomplishes a two-step tax reduction strategy for the donor! Charitable organizations benefit from tax exempt status. The shares of securities you gift can be sold by the charity tax free. In addition to the donor avoiding capital gains tax, they can also take the deduction on the value of the gift up to 30% of their modified adjusted gross income. An alternative to direct gifts that still encapsulates all the benefits of this strategy, is the utilization of a Donor Advised Fund. Donor advised funds, or DAF, are a charitable giving vehicle that will allow you to gift the appreciated security to the DAF, sell the stock without incurring any capital gains tax, take the tax deduction on the value of the gift and diversify proceeds into an asset allocated investment that you can make direct gifts from to charities over time. This is an option for people who are charitable inclined but may want to maintain the flexibility to change their philanthropic intentions over time.
CHARITABLE REMAINDER TRUST (CRT): A STRATEGY IN WHICH YOU DONATE APPRECIATED SECURITIES TO A CRT AND RECEIVE INCOME FROM THE TRUST.
A charitable remainder trust has similar tax benefits as an outright gift of appreciated securities to a charity; however, a charitable remainder trust will allow for you to receive income from the trust for life or a period defined by the trust. At the end of the trust, the remaining assets pass onto your charity of choice. A CRT is an efficient way to pass on assets to a charity while retaining an interest in the gift via the income you receive from the trust.
There are many ways to fulfill your intentions to make a monetary gift to a charity. We have only illustrated a few. Gifts and donation strategies look different for everyone. During this season of giving, we look forward to helping you understand the giving option best suited for you and your family.