By Pragya Murphy
When it comes to planning of any kind, there is no time like the present! For clients who are still working to finalize their charitable giving for the year, there are a number of considerations to keep top of mind as DECEMBER 31 DRAWS CLOSER:
TO ITEMIZE OR NOT TO ITEMIZE?
The passage of the Tax Cuts and Jobs Act in 2017 increased the standard deduction for taxpayers and thus significantly reduced the number of people who qualify for itemization. If deductions are not itemized, the tax benefit of charitable giving is eliminated. But the gifts themselves are still eligible for deduction, and with proper planning that benefit can still be enjoyed by your clients.
OPEN A FUND
By using a donor-advised fund, your clients may be able to maximize the tax advantages of giving. HOW IT WORKS:
- SET-UP. Creating a donor-advised fund at the Community Foundation is simple. There is no setup fee.
- MAKE A CONTRIBUTION; GET A TAX BENEFIT. Your clients make a gift in the current year (“Gift Year”) to a fund that is equal to their projected charitable giving over the next several years. This amount should be large enough to allow their total deductions to exceed the standard deduction for this Gift Year.
- USE THE FUND. Your clients can support the causes they care about – in Central New York and beyond – by recommending grants in any year they choose.
- ADD MORE MONEY WHEN IT MAKES SENSE. Your clients may add to their fund when their giving depletes it or in a year that they are able to itemize deductions.
As you review your clients’ position at year-end, you may determine that additional charitable contributions would be prudent to limit their tax liability. A NUMBER OF OPTIONS EXIST TO ACCOMPLISH THIS:
- This might be a good opportunity to gift highly appreciated securities to avoid capital gains tax. Using these securities would minimize the cost of the gift.
- Your clients can gift appreciated stock and immediately repurchase the same stock. This would bump up the cost basis in a particular holding and allow your clients to diversify a holding while avoiding the capital gains.
- Encourage your clients to consider making a donation of art or other personal property to a charity that can use the property in its exempt function. For example, art donated for the purposes of display in a collection would be deductible at the art’s appraised value, but for non-related use it is only deductible at cost basis.
REQUIRED MINIMUM DISTRIBUTIONS (RMDS)
When taking RMDs from retirement accounts, you can donate an amount to generate a charitable deduction that offsets the additional taxable income
CHARITABLE IRA ROLLOVER
Your clients can transfer a gift from an IRA to charity without it being counted as income or being taxed. This is called a qualified charitable distribution (QCD), more commonly known as the Charitable IRA Rollover. In addition to being a tax-free rollover, the QCD can count toward your required minimum distribution in any given tax year if completed by 12/31. If you don’t itemize, the QCD is an attractive alternative gift structure, especially for individuals looking to sustain or even increase giving as their cash-flow changes in retirement.
There Are a Number Of Gifting Strategies That Could Apply For Each Client Situation. Have this discussion prior to the end of the year so that if a charitable contribution is needed in 2019 there will still be time to make the gift.
DISCLAIMER: While we make every effort to ensure accuracy of this document, the information is not a substitute for expert legal, tax, or other professional advice, and we strongly encourage donors to work with counsel to determine what is appropriate in their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.