End-of-Year Charitable Giving Ideas
Several important donation strategies can be useful, especially in light of pending Federal tax legislation. This discussion primarily looks at income tax savings logic. I like to think of tax savings as a tool to give more (or letting the government share in my gifts).
We still don’t know the final pieces of tax law reform. But it is very clear that a majority of taxpayers will use the standard deduction beginning in 2018. If you will itemize deductions in 2017, you are certain to receive some tax savings for every additional dollar you donate before December 31, 2017. Also, nearly all taxpayers will see a reduction in the rate of tax they pay beginning in 2018. Of course, whenever you have an unusual year with higher than normal income, that may be the perfect time to accelerate charitable donations.
An increasingly popular method of accelerating charitable deductions is to establish a Donor Advised Fund (DAF). Most brokers can help you do this through their affiliated banks or trusts. I think of it as a simplified private foundation. The assets you contribute (usually cash or appreciated stocks) are an immediate tax deduction. Then you can spread out the distributions to Hope Church and other qualified charities over future years. Investment income within the DAF are not taxable to you.
This December is also a great time to donate some of your appreciated stock investments. The stock markets are at all-time highs. Such gifts are deductible for the current market value (not merely what you paid for it). Neither you, nor the Church will be taxed on the gain which has been growing since the date you purchased the stock
Another tax saving strategy to consider after you reach age 70.5 is a Qualified Charitable Distribution (QCD) from your IRA retirement account. This can serve both as a donation to the Church and to help satisfy your required minimum annual distribution from an IRA (required when you reach age 70.5).Â You can donate any amount up to 100,000 annually. These direct distributions will not be subject to income tax, but also not eligible for an itemized deduction. There can be significant tax savings by lowering your gross taxable income (our current complex system reduces several available deductions and credits based on gross income).
Please see a tax professional, and discuss with your financial advisor to help you determine which of these strategies is best for you this year and in the future.
by Brian Knutson, CPA, MBT, CVA and Hope Elder