As we approach another holiday season, I can’t help but think about what this time of the year means to me. Growing up, I spent my Thanksgiving traveling to Madisonville for a lunch prepared by my G-Mom, followed by a road trip back home to Bowling Green for a dinner prepared by my Mamaw. By the end of the day, I was worn out, but I was also reminded of the many blessings in my life. For many, this holiday season also reminds us of the blessing it is to be able to give back to others. Charitable giving is a wonderful way to make an impact, and there are various strategies you can use to maximize the impact of your charitable gift.
Donate Appreciated Assets
If you’re looking to make a charitable gift and have assets such as stocks, bonds, or real estate that have increased in value, you may want to consider gifting the appreciated asset to a charity rather than making a cash donation. By gifting an appreciated asset, you can potentially avoid paying the capital gains tax on the appreciation and give the full value of the asset to a charity. As well, if you itemize deductions, you may be eligible to deduct the fair market value of the gift, up to 30% of your adjusted gross income. Overall, this strategy allows you to maximize the value of the gift while saving on taxes.
Qualified Charitable Distributions
Individuals over the age of 701/2 with Traditional Individual Retirement Accounts (IRA) are eligible for qualified charitable distributions. A qualified charitable distribution (QCD) allows you to take a distribution from your IRA and send the funds directly to a qualified charity of your choice, up to the annual limit. If you’re required to take a minimum distribution from your retirement account, you can count your qualified charitable distributions as part of your required minimum distribution (RMD) for the year without counting those funds toward your taxable income for that year. This helps you satisfy your RMD while avoiding tax liability on the distribution. This strategy may be utilized by someone needing to take their RMD, but they do not need the funds and would prefer to make a tax-free gift to charity with their distribution.
Donor Advised Funds
A donor-advised fund is an investment account that’s sole purpose is supporting charitable organizations you care about. This can be a great planning tool if you are looking to retain some control and flexibility over how and when the donations are distributed. Upon making a gift, you are eligible for an immediate tax deduction. The funds you contribute can then potentially be invested for tax-free growth before being distributed to the charity. If you’re inclined to give to multiple charities, you have the ability to distribute the funds to the charities of your choice. Ultimately, the flexibility and tax advantages of a donor-advised fund have grown them into one of the most popular charitable vehicles today.
The strategies mentioned in this article are not “one size fits all.” What strategy you utilize depends on your goals and intent for giving. It’s crucial that you consult with the proper professionals when determining what strategy is right for you and how to go about executing that strategy.
As you start to get into the holiday spirit, I’ll leave you with this quote to reflect on… “We make a living by what we get, but we make a life by what we give.” –Winston Churchill
-by Jacob Young, AAMS®
Financial Advisor, RJFS
313 East 10th Ave.
Bowling Green, KY 42101
Phone: 270-846-2656
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.
Ben Smith Life Compass Financial is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.
Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.
Donors are urged to consult their attorneys, accountants, or tax advisors with respect to questions relating to deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.
RMD’s are generally subject to federal income tax and may be subject to state taxes.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
