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Time for a Gifting Strategy Review

Time for a Gifting Strategy Review

December 21, 2021

With the holiday season in full swing, it’s a great time a year to review your charitable gifting strategy. Without the generosity of their fellow citizens, many Americans would find it much more difficult to get through the year. While donating to charity is always an excellent endeavor, we recommend reviewing your methods of donating for your particular financial situation.

Before giving funds to any organization, you should verify if they are designated by the IRS as a  501(c)(3). Also, you should always get a receipt or written verification of your donation. If donating by check, it’s always a good idea to retain a copy of the original check.

We also recommend researching a particular charity to verify that the majority of your donation will go to supporting the organization’s cause. There are many websites you can use when vetting the charities. A couple of these are listed below:

The most common method of donating is typically cash or check. When using this method, the taxpayer will receive the ability to itemize a deduction. However, with the expansion of the standard deduction in 2018, this is not as attractive from a tax perspective as it once was.

In lieu of a cash donation, an individual may find that donating highly appreciated stock is more beneficial. They would still get the itemized deduction, and would remove a future capital gains tax liability from their estate. Please note that stock shares need to be held for over a year to receive the deduction at fair market value. If held for less than one year, then only cost basis can be deducted.

Many retirees are using a strategy known as the QCD to make their donations. This strategy has been used much more frequently since the changes to the tax code in 2018. You must be over age 70 ½, and the donation must be sent directly from an IRA to the charity. If the donation is transacted in this manner, and if all the other requirements are met, then the full amount of the donation is excluded from your income. Dollar-for-dollar, directly reducing income will usually represent a higher tax savings than a deduction. The QCD strategy works best for individuals that are no longer making IRA contributions, and do not need their full RMD amount. It will also work well for individuals that plan take an IRA withdrawal to give to the charity regardless (because the IRA is their primary income source).

A donor-advised fund could be another option for donations. These are essentially charitable investment accounts controlled by the donor. When a gift of cash or securities are made to the fund, the donor is eligible for an itemized tax deduction. The assets held in the fund can be invested for tax free growth, and the distributions are granted by the donor to the 501(c)(3) charity of their choosing.

There are other donation options as well that typically apply to high net worth individuals. These can be charitable annuities and/or charitable trusts. These can be set up in several formats and can either lead with the charitable gift, or the gift can remain for the charity at the owner’s passing. The deductibility of these can depend on how much control the owner has, when the donation is received by the charity, and by how much the donor is benefiting from the arrangement.

Please reach out to your investment advisor and tax professional to discuss these gifting strategies. They will be able to recommend a method that will aligns best with your financial situation.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.