4 tax-smart approaches to year-end charitable giving

Eric Siegfried, CPA

Making strategic choices about how and when you donate deepens your philanthropic footprint. As you choose your favorite causes, like Hospice of the Chesapeake, to support this year, here are four tax-smart approaches for year-end charitable giving, subject to IRS limitations:

1. Bunch donations: Combine (or bunch) several years of donations into one tax year. This increases itemized deductions for the year. This strategy works best for taxpayers who normally would be using the standard deduction, or in a year of unusually high taxable income.
2. Donate appreciated long-term securities: When you give long-term (held more than one-year) appreciated securities (stocks, mutual funds, bonds, cryptocurrency) you receive a tax deduction for the current fair market value of your donation. By not selling the stock you also avoid capital gains taxes on the appreciation. Alternatively, stock with a loss should be sold first and the cash proceeds contributed in order to recognize the capital loss. Contact your brokerage firm for specific instructions and timing.
3. Set up and contribute to a DAF: A donor-advised fund is a charitable investment account. You can support multiple causes in multiple years with a single donation. The investments within the account can continue to grow without incurring capital gains taxes, providing additional future contributions. It benefits individuals who have a larger than normal year of income by allowing the deduction to be taken in that year, while allowing the contributions to be spread out over several years.
4. Donate with a QCD: If you are age 70 1/2 or older, you can donate up to $100,000 directly from your traditional individual retirement account (IRA) with a qualified charitable distribution (QCD). The QCD allows the distribution from the IRA to be excluded from income, while also counting toward your required minimum distribution (RMD). It benefits individuals who take the standard deductions by reducing income where a deduction would otherwise not be advantageous. It also benefits individuals who itemize by keeping an IRA distribution out of income for other components of the tax return that have a threshold to exceed based on income (e.g., 7.5% for medical deductions) and can potentially reduce future Medicare premiums compared to taking the IRA distribution without doing a QCD.

Read more about planned giving at https://hospicechesapeake.planmygift.org/

Eric Siegfried, CPA, is a partner with Mullen, Sondberg, Wimbish & Stone, PA, and Chair of the Hospice of the Chesapeake Planned Giving Advisory Council.

This article is for informational purposes and is the opinion of the author based on current interpretations of the law, which can change with future IRS guidance or additional legislation. Your circumstances may require direct advice from your legal, tax and investment professional.