Year-End Gifting Strategies

Kandice RileyFinancial Stability

By Travis Liles, CFP®
Senior Advisor | BKD Wealth Advisors

As the holiday season approaches, generosity and giving are on the forefront of people’s minds. As you think about making your year-end charitable gifts, consider these tips to help ensure your donation has the greatest impact for both you and those in need.

Make a gift that is meaningful to you. Regardless of your gift’s economic benefits, it must first provide you with joy and satisfaction. Choose a cause you are passionate about supporting. What will your gift mean to the charity and its mission? How will your gift help make a difference in someone’s life? Consider these questions when deciding which organization to support.

Assess your current gifting plan. Talk with your trusted advisors (financial advisor, CPA or attorney) about your generous intentions. Evaluate the gifting you have already done this year, and determine how this contribution fits into your overall gifting plan. Taking a moment to strategize will go a long way toward enhancing your gift’s charitable impact and tax efficiency. Here are a few strategies to consider:

  1. Make a qualified charitable distribution (QCD) – A QCD is a distribution directly from your individual retirement account to a qualified charity. You must be 70 1/2 or older to be eligible to make a QCD, and the donated amount (up to $100,000 per year) is excluded from your taxable income. Keeping your taxable income lower also may help reduce the amount of your Social Security income that is taxable and the amount of your Medicare premiums.
  2. Gift appreciated stock – It generally is more tax-efficient to give appreciated securities than to write a check. If you have a portfolio with stocks and/or mutual funds in a taxable account, e.g., individual, joint or trust account, some of your investments may have increased in value since your initial purchase cost. For example, if you paid $10 a share and the investment is now worth $20 a share, you have capital appreciation. If you choose to gift this investment to charity, you may get a tax deduction based on the gift’s full amount and may eliminate owing capital gains tax on the appreciation of that investment.
  3. Use a donor-advised fund (DAF) – Using a DAF to make charitable contributions can provide many benefits:
    1. If you make many smaller gifts to charities and do not want to gift small amounts of appreciated stock multiple times, consider using a DAF. You can make one annual gift of an appreciated asset to the DAF and then grant those gifts from the DAF by check directly to the charities throughout the year, as well as in future years.
    2. You may have experienced a significant tax event, e.g., selling a business or receiving a large bonus, in a given year and want to make a one-time larger charitable donation for the tax benefit. For those who do not want to give those dollars to a charity all at once or do not know which causes they ultimately want to support, a DAF might be the solution. A DAF allows you to receive the tax benefit in the year you gifted to the fund. Then, as opportunities allow, you can grant to charities from the DAF in future years.
    3. Under the Tax Cuts and Jobs Act (TCJA), which took effect in 2018, standard deductions have almost doubled and new limits have been placed on some itemized deductions—while others completely disappeared. Those who have itemized their charitable deductions in past years but are reconsidering this method due to the TCJA might consider charitable bunching. Charitable bunching involves grouping two years or more of your charitable gifts into a single year to exceed the itemization threshold (in other years, take the standard deduction). By placing those charity funds into a DAF, you create a pool of funds to continue your regular monthly or annual donations in a tax-efficient way. For example, if you normally give $10,000 per year to charities, with the TCJA you might consider gifting $30,000 every three years to your DAF and then using the DAF to continue gifts to your charities in the amount of $10,000 each year.

There are other appreciated assets and many more gifting strategies to consider based on your unique situation. We recommend you consult one of your trusted advisors to help determine which strategy is right for you. Your financial advisor can assist you with implementing your strategy and ensuring your charitable gifts will achieve your goals this holiday season. For more information, contact Travis Liles or your BKD trusted advisor today.

This article is for general information purposes only and is not to be considered as legal advice. This information was written by qualified, experienced BKD professionals, but applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult your BKD advisor or legal counsel before acting on any matter covered in this update.

Article reprinted with permission from BKD CPAs & Advisors, All rights reserved.