Bigger bang for the charitable buck
By Chris Evers
Led by individual donations, 2015 marked a high-water mark for charitable giving. According to annual estimates by Giving USA and Indiana University, Americans gave more than $1 billion a day to philanthropies, and individuals accounted for more than 70% of the contributions.
For investors considering year-end donations, a number of options exist. Determining which works best for you can help make the most of your generosity. Some of your choices:
The simplest way to be charitable with investment assets is by sending cash to a charity of your choice. If you itemize deductions on your income tax return, you can deduct qualified charitable contributions, including cash gifts. This may be the easiest way to get money to causes you care about, but other methods can offer greater tax advantages.
This adds another layer of potential benefit for highly appreciated assets (stocks, bonds, mutual funds and exchange-traded funds) that you have held for over a year. In addition to the charitable deduction for the value of your donation, you can also avoid realizing the gains on the investment and paying the resulting capital gains taxes.
Arranging a Qualified Charitable Distribution
Individuals over 70½ can send a distribution from their IRAs, up to $100,000 each year, directly to a charity, and the distribution will not count as taxable income. They can use a qualified charitable distribution to satisfy their annual required minimum distribution, but they cannot also claim the donation as a charitable deduction. The IRA owner must be 70½ or older at the time of the charitable distribution.
Congress first provided this option in 2006, but when it lapsed in 2009, it was subject to perennial year-end renewals. Lawmakers made the provision permanent in 2015.
Giving to a Donor-Advised Fund
This is a powerful option that is becoming more popular.
A donor-advised fund lets an individual make an irrevocable contribution to a special managed account set up through a mutual fund family or brokerage firm. The contributions are tax-deductible in the year they’re made, and the donor can delay when to distribute assets from the fund to qualified charities.
While charitable giving doesn’t need a tax strategy to have an impact, investors can find a way to try to make the most of the assets they decide to donate. The best way to donate to a charity can be different for each individual, so it can pay to discuss it with a tax professional.
Chris Evers is a registered representative and associate at Landaas & Company.
(initially posted Dec. 2, 2016)