By Michael A. Dolan
With the holiday season upon us, we often consider making year-end charitable gifts to help those less fortunate, or to support worthy causes. When making charitable gifts, do not forget to carefully consider the tax implications.
You should put together an effective strategy to maximize the benefit to the charity, reduce the amount going to the government and lower your overall cost of the gift.
Try to think out of the box when giving. Rather than simply sending a check, look at the assets you own and consider making an in-kind contribution of an asset that has appreciated in value.
Giving an appreciated stock out of your investment account directly to the charity avoids you having to pay tax on the gain. You may get credit for the full amount of the gift, the charity does not pay any tax, and less money goes to the IRS.
Your cost of the gift is reduced because you would eventually sell the stock and have to pay the tax. Plan early for in-kind contributions, as it can take time to confirm the strategy with your tax adviser and coordinate the transaction between your broker and the charity.
Consider deductions carefully
Under the Tax Cuts and Jobs Act passed in late 2017, the standard deduction for married couples could be as high as $26,600 in 2019. If you don’t have itemized deductions in excess of that amount, there may not be a tax benefit to your charitable giving. If that is the case, there are some strategies that may help you gain a tax advantage.
You may be able to make the charitable gift directly from your IRA to the charity. It counts as your annual required minimum distribution, and you do not have to report the transfer as income on your return. This effectively results in the gift being deductible, even if your deductions do not exceed the standard deduction. There are restrictions on the amount you can transfer, and which taxpayers qualify, so check with your tax adviser.
Consider making all your charitable gifts every other year. Bunching your annual gifts together can put the total over the standard deduction that year. For example, if you are prepaying a tithe to your church, pay your regular amount throughout 2019, and then in December, give the church the total amount you would give in 2020. Be sure to let your church know that you are prepaying your tithe for 2020, so its administration does not expect that extra amount every year.
If you have the funds available, make a large gift to a donor-advised fund this year. You then direct your regular annual gifting out of the DAF, and make no personal gifts during the following years. The charity gets the same amount each year, but you get to take the deduction for the larger amount this year. Speak to your financial adviser about DAF options.
If you have questions about getting the most out of your charitable giving, contact the charity or your tax adviser for additional advice.
Dolan, an attorney, helps farm and ranch families achieve comprehensive estate, succession and legacy planning objectives. Dolan is the principal of Dolan & Associates P.C. in Brighton and Westminster, Colo. Learn more on his website, estateplansthatwork.com.