Year-End Giving Strategies
Nov 4, 2024
“Bunching” + Donor Advised Fund
Over 90% of tax returns are filed with the standard deduction. Said another way, many of your clients are not itemizing and therefore not necessarily taking tax deductions for their charitable gifts. With the “bunching” strategy, an individual/family could accelerate multiple years' worth of giving into a single tax year, which could push them into an itemized return and therefore may have the ability to write off charitable donations. Here’s an example, let’s say that you have a client donating $10,000 per year to their favorite nonprofits. This client likely is not filing an itemized return and therefore not likely to receive a tax deduction. However, if that same client were to consider pre-funding a certain number of years, let’s say five, worth of charitable giving (i.e. $50,000) into a single tax year, that would break them through the standard deduction and would potentially be eligible for a tax deduction on the gift. Even better, by utilizing a donor advised fund, they could recommend when and where to spend that $50,000 and continue to utilize that same $10,000 per year cadence to which they are accustomed.
Roth Conversion + Charitable Gifts
Many advisors are working with their clients on converting some or all their Traditional IRA into a Roth IRA for tax planning purposes. As you all know that conversion generates a taxable event. In the years of Roth conversion, the client could consider increasing their charitable giving to help offset some or all that tax liability. We’ve seen more and more advisors and donors use this strategy with a donor advised fund. Advisors and donors look at this as “pre-funding” their future years of charitable giving and helping lessen the tax bite of the Roth conversion.
QCD + Designated Fund
Qualified Charitable Distributions (QCD’s) can be a powerful tax-planning strategy for clients over the age of 70 ½. As you are likely aware, the government allows individuals to give up to $105,000 per year directly from their IRA to charity. With IRA assets in the trillions (with a “t”), individuals sometimes are in a position where their Required Minimum Distribution (RMD) is large enough that they don’t need the additional income. Rather than taking the RMD and inflating their Adjusted Gross Income (AGI) which could push them into higher tax brackets, disrupt their Social Security and other benefits, some individuals are choosing to bypass that income completely using a QCD. For some, those distributions can be quite large and while they like the idea of being charitable, they aren’t excited about the major windfall into the nonprofit’s hands. In these cases, individuals have established a Designated Endowment fund to permanently support their favorite nonprofit or cause. For example, with a $20,000 QCD, your client could permanently support their favorite charity with $1,000 per year, forever. Maybe your client is already supporting their local church or favorite nonprofit every year anyway (likely from their checkbook), why not consider suggesting an alternative, tax-advantaged way of doing this using the QCD strategy?
Appreciated Securities
With markets near all-time highs, now is a great time to remind clients that gifts of highly appreciated securities are a great tax planning strategy. Why should a client write a check to a nonprofit with after-tax dollars when they could send highly appreciated securities with the same value and a better tax-advantaged outcome? Additionally, if you and/or the client are concerned about disrupting the overall portfolio asset allocation, consider re-purchasing that same position to restore the asset allocation target as well as receive a step up in cost basis.
As always, please reach out to the Community Foundation to discuss options for your clients’ charitable giving. We are happy to help you help your clients achieve their goals!