This time of year, while we are buying our gifts for our friends and family, we might want to think of those less fortunate than we are. The combination of inflation, wars and political changes has increased the number of needy and needy causes in the world. Being charitable can also help reduce our taxes, an added bonus to the warm feeling of sharing with others brings.
We get many questions about smart ways to give to charities and here are some examples:
Appreciated Securities
If you own appreciated securities in your own or joint name, you can gift all or some of those shares to a qualified 501(c)(3) charity or a Donor-Advisor-Fund (DAF). You have stock you bought for $500 and currently the stock is valued $50,000. You give the stock in kind to charity and you can take a $50,000 deduction on your itemized Schedule A. The charity is exempt from tax on the donation.
Qualified Charitable Distribution (QCD) from IRA
You might hear on the radio or read in the newspaper about a QCD from your traditional IRA. What is that? Each taxpayer over age 70.5 is allowed to make an annual $100,000 charitable contribution directly to a qualified charity from an IRA which will count towards the Required Minimum Distribution and you pay no tax on it. The charitable organization receives this gift and it too is exempt from paying tax on it. Again, most public charities qualify, however, donor-advised funds, private foundations, and supporting organizations do not.
Donor Advised Fund (DAF)
This is a fund (similar to an account) in your name with flexible giving options, and tax benefits. It must be set up at a sponsoring organization, a qualified 501(c)(3) charity or a qualified bank or brokerage firm. Immediately following a contribution to the DAF, donors are eligible for a tax deduction in that calendar year up to their allowed tax deduction.
For instance when you make a contribution of $10,000 (or $100,000) this December, to your DAF, you receive a tax deduction for 2024 and you can decide over the next couple of years to which charitable organizations you want to give donations. When you put a large amount in the DAF that you will not distribute this year, that amount can be invested, to grow and donate it in future years. The investment grows tax-free.
Your grant recommendations must be approved by the sponsoring DAF organization. A grant recommendation can be rejected if it does not abide by the organization’s standards or guidelines. As it is difficult for many people to go over the standard deduction with the current tax limits, you can ‘bunch’ donations every couple of years and this will allow you to itemize in that year.
Donors must understand that contributions to DAFs are irrevocable. While you maintain advisory and grantmaking privileges for your DAF account, once assets are gifted to the account, they belong fully to the sponsoring organization and cannot be taken back.
We can help you with your charitable donations, be it in donating appreciated stock directly to a charity from your taxable brokerage account or QCD distributions from your IRA accounts. We can also help you set up a Donor Advised Fund and manage the assets for you.
