Charitable Gifting Options as We Close Out the Year

The long warm summer we’ve enjoyed in the Pacific Northwest is officially transitioning into fall. With the cooler temperatures and changing leaves, our thoughts turn toward the holidays, gift giving season, and how we can make an impact in our community before the year is over.

When it comes to making a charitable impact through financial support, there are a variety of ways to give, and they range in levels of complexity. Here are a few gifting options to consider:

Cash

The simplest way to give – you make a cash gift directly to the charity of your choosing. Remember to get a receipt for any donation made if a tax deduction is applicable[i]. In the case of event auctions and other donations that include gifts, make sure you know the fair market value of the item you purchase; the tax deduction you receive is only for the amount above fair market value.

In-Kind Gifts

This includes gifting tangible items (e.g., cars, boats, art, antiques, household items, etc.), services and skills, and gifts of your volunteer time. In-kind gifts can also be tax deductible if they are itemized on a receipt.

Gifting Appreciated Property or Securities

Many charitable organizations will accept gifts of appreciated securities or property (e.g., stocks, bonds, mutual funds, and real estate). When gifting appreciated assets directly to a charity, no capital gains are incurred, and the charity receives the full value of your gift. Keep in mind the IRS puts lower limits on how much you can deduct on appreciated gifts — limiting it to 30% of your adjusted gross income[ii].

IRA Qualified Charitable Distributions (QCDs)

If you are over age 70½, you can distribute cash directly from your IRA to a 501(c)(3) charity. QCDs are limited to $100,000 per year and distributions are not considered taxable income to the IRA owner. A QCD counts towards reducing your annual required minimum distribution (RMD), but because it’s a tax-free distribution it does not count towards your itemized deductions for the year.

Charitable Gift Fund or Donor Advised Fund (DAF)

Donor advised funds are a popular giving vehicle due to the flexibility and tax advantages they provide. A DAF is established with a public charity that administers the funds. You contribute cash or appreciated assets to the giving account, receive an immediate tax deduction (up to annual limits), and recommend grants from the account over time. The funds contributed to the DAF can be invested and you can make donations to your favorite charities when the timing is right for you.

Charitable Trusts

These complex irrevocable trusts require the guidance and drafting expertise of an estate attorney who is well-versed in the tax laws surrounding these trusts. The two common types of charitable trusts are:

Charitable lead trusts – they benefit the non-profit organization at the beginning of the trust term and then distribute remaining assets to non-charitable beneficiaries, such as family members.

Charitable remainder trusts – the non-charitable beneficiary receives an income stream from the trust, and at the end of the trust term the remaining assets go to the charity.

Private Family Foundations

Private foundations are the most complex form of charitable gifting but allow for a formal means of generational legacy giving and flexibility in timing of gifts. Foundations require additional administration, as they necessitate minimum giving distributions each year and have fairly substantial annual reporting.

As we approach year end, the most important thing you can do is act. It’s important to evaluate the various charitable giving options and select the right option for you and your family. Your charitable gifts can make an impact both to the charity and your community. Each year we help families facilitate their giving strategy and build a legacy of giving. Contact us today, and we’ll match with you a Wealth Manager to get your giving strategy in place.

[i] If you itemize on your tax return, the IRS has limited deductions on cash contributions to qualified public charities to 60% of your adjusted gross income (AGI).

[ii] If unused, this deduction can be carried forward for 5 years.