At the end of the year—and especially on #GivingTuesday—a lot of us are thinking about giving. Whether you're making short-term or long-term plans, here are five tips for being strategic and intentional with your giving habits.
- Donate appreciated assets to public charities.
Instead of writing a check, consider donating stock or mutual funds from your investment portfolio. If you’ve owned assets for more than a year and the current value is greater than what you’ve paid for it, you can give the appreciated security to charity. The benefit: no capital gains—for you or the charity. The other benefit? You will receive a charitable deduction up to 50% of your Adjusted Gross Income. Wow! A good deal and a good deed.
- Decrease your taxable income: make a qualified charitable donation.
For those who are 70½ years old, the IRS requires you to take a Required Minimum Distribution (RMD) from your IRA. This distribution is taxed as ordinary income. If you are lucky enough not to need these funds for living expenses, consider using some or all of these funds to donate to a public charity. As long as the donation is at least equal to your Required Minimum Distribution, you will have satisfied your RMD requirement and the distribution is not taxable to you OR the charity. How can you do this? Similar to receiving your RMD, ask your advisor to liquidate the needed assets and send a check directly to the charity. Do not wait until the end of December: ideally the charity should cash the check before January 1st.
- Make a gift to a family member.
How to decrease the value of your estate? Consider a gift of appreciated assets (usually stock, mutual funds, or ETFs) to family members (or a really, really good friend) in a lower tax bracket. The limit, without going over the gift-tax exclusion, is $14,000. How many gifts of $14,000 can you make? As many as you want. The key is to donate to an individual with a lower tax bracket because your cost basis (the price you paid for the stock or mutual fund) is transferred to the new owner. Ideally, if the recipient sells the asset, their capital gains will be lower than the donor. One caveat: be careful about donating to someone younger than 24 years old, because the “Kiddie Tax” can kick in.
- Consider using a Donor-Advised Fund (DAF).
Has it been a really good year for you? Perhaps you received a substantial raise or you sold (finally!) that screenplay. Donor-Advised Funds (DAF) are an effective way to make a deductible contribution and not worry. Why? Any contribution to a DAF is considered a tax deduction; you can give the funds to charity at a later date. You can also invest your funds in the stock market; as your assets grow, you can give all or part to charity. DAFs also come in handy when wanting to memorialize someone and you’re not really sure what to do. Or, perhaps, you want to give a substantial gift by pooling assets with friends or family. Regardless of your reason, creating a Donor Advised Fund is an easy way to make a charitable donation.
- Make it Work for You.
Whatever you do, be strategic and intentional. Give in a manner that is appropriate for you. It’s your money—you’ve worked hard for it.