Category Archives: Banking

5 of the Best Strategies to Keep in Mind as You Plan Your Year-End Giving

5 of the Best Strategies to Keep in Mind as You Plan Your Year-End Giving

Given the difficult financial situation for many people this year, as well as changes in tax policy, many individuals may be confused about how and if they should engage in year-end giving. If you find yourself in this position, you should consider the amount you have to give and whether giving means you could then itemize your 2020 taxes.

Of course, you should still consider giving if you have the funds available even when the tax break is not substantial. However, the decision is ultimately a personal one. Even with changes to taxes, individuals in higher tax brackets will likely still benefit from year-end giving, provided that they approach it with a clear strategy.

Some of the important strategies to keep in mind when thinking about year-end giving in 2020 include:

1. Open up a donor-advised fund.

In recent years, donor-advised funds (DAFs) have become extremely popular. Through these vehicles, individuals can put money earmarked for charity into an account and then make grants to their charities at a later time. Several organizations sponsor DAFs and opening the account is a relatively painless process.

Contributions to the DAF qualify for charitable deductions immediately even though the money does not pass to charities until a later date. This means that you can benefit from the tax write-off upfront and to decide where the money goes down the line. This strategy is especially good for people with unexpectedly high earnings or those with year-end bonuses or stock option exercises that will affect their taxes.

2. Give securities rather than cash.

For the most part, charitable giving involves gifts of cash. However, mutual funds, bonds, and stocks can all be donated to qualifying organizations. Most publicly-traded securities can be donated. Furthermore, when this donation is made, the donor can claim fair market value for the deduction rather than the price they paid. In other words, they can count the appreciation of the security as part of the tax deduction.

No capital gains taxes are owed when securities are donated rather than sold. You can deduct up to 30 percent of your adjusted gross income using this strategy. In addition, you can donate restricted or privately traded securities for a deduction. Various limitations apply, so do the appropriate research first. If you get a bonus of stock from your company, you may be able to reach philanthropic goals and minimize capital gains tax by donating the securities.

3. Donate complex assets.

You can also consider donating complex and illiquid assets, including real estate, bitcoin, alternative investments, restricted stock, and private company stock. Donating these assets requires more time and energy than cash or even publicly traded securities, but doing so comes with some clear advantages.

For example, these assets typically are fairly low cost. For some people, for example entrepreneurs, some stock may not have any cost at all. This means that you can get a tax break without really spending any money upfront. When going this route, you should talk to financial or legal advisors to make sure you adhere to specific laws and regulations.

However, not all charities are willing to accept these sorts of assets, so it is important to speak to potential recipients about their capabilities. Sometimes, it is possible to streamline the process by going through a DAF, which can also make it easier for a nonprofit to accept the gift.

4. Combine giving with a Roth conversion.

If you plan to convert a traditional individual retirement account (IRA) into a Roth version, you may be able to offset the tax costs through your charitable giving. Roth IRA conversions are a great way to deal with tax burden during retirement. Unfortunately, the upfront cost can be high, since you essentially need to pay taxes on the entire amount in the account. The benefit is that down the line, you will be able to make withdrawals without paying any taxes.

As a result of the tax burden, the best time to do a conversion is in a year when you can claim a large tax deduction. These may mean making considerable charitable contributions. Speak with a tax professional to come up with a plan for you and your accounts. It could be possible to offset your tax costs quite significantly in the short-term while simultaneously funneling money toward a good cause and minimizing your future tax burden.

5. Consider a qualified charitable distribution.

More established individuals hoping to give back may be able to take advantage of qualified charitable distributions (QCDs) from an IRA. You need to be at least 72 and have an IRA to qualify.

QCDs are contributions made from an IRA directly to a charitable organization that do not trigger any tax consequences. The primary benefit of this strategy is that it can also satisfy up to $100,000 of a required minimum distribution. If you do not have many other deductions, this strategy could end up saving you money.

QCDs can also be beneficial for individuals who are already close to charitable deduction limitations, since they do not count toward this limit. This year, the CARES act temporarily waived required minimum distributions, but you should keep this strategy in mind for other years when you need to meet this goal.

How to Incorporate Philanthropy into Your Estate Planning

How to Incorporate Philanthropy into Your Estate Planning

Through estate planning, people can leverage their wealth to serve a variety of philanthropic causes, both during their lifetime and beyond. While philanthropy does not always become part of the estate planning process, it can help families establish a legacy and perhaps even drive connections between different generations. When you decide you want to include… Continue Reading

Digital Currency’s Potential to Disrupt the Charity Sector

Digital Currency’s Potential to Disrupt the Charity Sector

The conversation about cryptocurrency in the world of philanthropy has grown steadily since Pine emerged as the first major Bitcoin philanthropist. Pine has given away millions of dollars as the founder of the Pineapple Fund, which has promised to give away about $86 million worth of the cryptocurrency to a number of different causes. While… Continue Reading