This is one of the most important times of year for charitable fundraising. Nearly a third of all donations are made during the month of December. There’s nothing like a deadline to motivate, and the end of a tax year often gives us that much needed nudge to make our donation!
With that in mind, here are five tips when considering your year end charitable giving.
It’s been a great couple years for stocks
Share some of that wealth with your favorite charity while managing risk within your portfolio. If you have one or two stocks that have done especially well over the years, they may now represent a larger proportion of your portfolio than is prudent. Selling the stocks could entail a large capital gains tax. Gifting some shares to charity instead may help you avoid the tax while reducing the holding to something more reasonable and getting the added benefit of a tax deduction.
Consider using a Donor Advised Fund (DAF) now to pre-fund your future charitable gifts before your tax bracket declines. A DAF is like a charitable savings account that you contribute to now to maximize the tax advantage. You can then make your annual gifts from for however many years in the future that fits your overall plan. This allows you to offset your current income levels prior to retiring when most investor’s taxable income declines. This can also be useful with a spike in your taxable income related to business or residence sale, bonus payments, exercise of stock options, or a Roth conversion.
Uncle Sam now requires you to take minimum distributions (RMDs) from your retirement account, which flows through your tax return as ordinary income. Recent tax law changes have made permanent the ability to directly gift up to $100,000 from your IRA to charity, including the amount needed to satisfy the RMD. We refer to this as making a Qualified Charitable Distributions (QCD). Doing so allows you to exclude the distribution from your income on the Federal tax return. Some states like New Jersey, though, may still tax it. Depending on your situation, this may help preserve some of your deductions which otherwise are subject to phase-out rules, reduce income-based Medicare premiums, or also limit the impact of the Alternative Minimum Tax (AMT).
Want to do more, but feel a bit strapped after all that holiday shopping?
Your favorite charity may have a monthly giving program. This can allow you to spread your gift out over the year and likely give more as a result. These programs are set up as an autopay from your checking account, making it easy to do and giving you that good feeling that comes from being charitable 12 times during the year!
Don’t procrastinate much longer
Custodians may be less responsive as the year end approaches and some of these strategies may take some time to process. You don’t want to wait until the end of December only to find that you’ve run out of time.
Check with your RegentAtlantic wealth advisor and tax accountant to discuss the pros and cons for these strategies. There are numerous variables and rules to consider when determining the best method for making charitable gifts that are beyond the scope of this article.
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.