10/18/2023 Fall 2023

‘Tis the Season for Giving

Make your charitable donations go further with these giving strategies.

Between the generous spirit we all feel around the holidays and the opportunity to get some year-end tax planning in, this is the perfect time of year for charitable giving. Some of the strategies available to you include:

Giving Appreciated Stock
When you donate stocks or bonds that you’ve held for more than a year, you are allowed to deduct the current value rather than the purchase price. After a year like this one, many investors are looking to realign their asset allocation, which makes it a good time to sell off appreciated stock. One caveat: The deduction is limited to 30% of your Adjusted Gross Income (AGI). But if you can’t take the full deduction this year, you can carry the rest of it forward to use over the next five years.

Qualified Charitable Distributions from an IRA
If you’re 70 ½ or older, you can use your Required Minimum Distribution (RMD) to donate up to $100,000 to a 501(c)(3) public charity. While you don’t benefit from a charitable deduction, the amount you donate is removed from your AGI, unlike a regular RMD.

Bunching
Most taxpayers won’t benefit from itemizing their charitable gifts as deductions. But if you bunch several years of donations into a single year, you can make use of that higher deduction in one year. Then you just skip your donations the next year.

Donor-Advised Funds and Private Foundations
These are more complex options for long-term philanthropic efforts. A donor-advised fund is an investment account you create, then allow a nonprofit organization to invest and manage the fund. You get an immediate tax deduction equal to your contribution, investments in the fund grow tax-free, and you can make grants to charities you support over time.

A private foundation is a charitable trust or a nonprofit corporation primarily funded by you or your family. Assets donated to a private foundation are deductible for up to just 30% of your AGI, but unlike with a DAF, the foundation’s officers have full discretion over where the donations go, and they’re not limited to 501(c)(3) charities.

Charitable Remainder and Charitable Lead Trusts
After you fund a Charitable Remainder Trust, you as the grantor can take income from it for the rest of your life, then the balance goes to a charity. Taxes are deferred until the assets are paid out over the course of your lifetime. These can be especially valuable for people holding appreciated assets, such as stock or even a business; selling those inside the CRT can allow the tax to be deferred over perhaps many years.

A variation is a Charitable Lead Trust, in which the charity receives a percentage of the trust’s assets annually. After the grantor’s death, the remaining assets in the trust then pass to your heirs.

Are you feeling generous this season? Talk to your Baird Financial Advisor about how you can make the most of your philanthropic gifts.