The giving season is underway, and as the end of the year approaches, many readers will be supporting local charities. For many readers, charitable giving typically involves getting out the checkbook and mailing a check. But what if there were a better way? I’d like to share three tax-efficient methods of giving that might allow you to have a bigger impact.
Gifting Appreciated Securities Held in a Taxable Account
If you were fortunate enough to buy stock that’s appreciated over the years and held those shares outside of your retirement accounts in a taxable brokerage account, selling them may result in a capital gain. Depending on your income, the sale could result in a capital gains tax. Did you know that you can gift shares of highly appreciated stock directly to a charity? Instead of writing a check, if you donate the stock directly, you minimize the capital gains tax you’d otherwise incur by selling the stock yourself. Many charities have brokerage accounts that can receive stock donations, so reach out to the charity before writing a check.
Qualified Charitable Distributions
If you’re over the age of 70½ (yes, the half year is important), a qualified charitable distribution (QCD) allows you to donate up to $105,000 per individual to one or more charities directly from a taxable IRA. This can help you avoid being pushed into a higher income tax bracket and could prevent the phaseout of other tax deductions. There are some caveats: the QCD must come from a traditional IRA, inherited IRA, SIMPLE IRA, or SEP, and the distribution must go directly to the charity, meaning it must be made payable to the charity you are donating to. Some brokerage firms allow you to get a checkbook for your IRA, enabling you to write checks directly to the charities you wish to support.
Donor-Advised Accounts
If 2024 will be a larger-than-normal tax year for you, or if you like the idea of having money set aside for future charitable gifting, a donor-advised account is worth considering. These accounts can be opened at several brokerage firms and function like an investment account with the sole purpose of supporting charitable organizations you care about. A gift to a donor-advised account can be made with cash or appreciated assets, such as the stock example previously discussed. The unique aspect of a donor-advised account is that the money you donate is generally tax-deductible in the year you make the contribution, though that money does not
need to be distributed to a charity immediately. As the name suggests, you, as the donor, will advise which charities receive grants from the account, maintaining control over the timing and size of distributions. Gifting multiple years’ worth of expected charitable donations in one year is a tax-efficient way to increase your potential charitable deductions while continuing to maintain control over the distributions for years to come.
It’s important to talk to your tax advisor about whether one or more of these strategies are appropriate for your situation. As wealth advisors, we at Choreo collaborate with tax professionals daily and would be happy to discuss how tax-effective charitable giving fits into your overall financial picture.
Mike Giudici, CFP®, MBA is a senior director of wealth management with Choreo, an
independent firm focused on redefining the RIA’s place in the wealth advisory industry. He was recently named to the QCBJ 40 under 40 for 2024, and helps clients navigate all areas of their financial lives. www.choreoadvisors.comÂ
Choreo, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training of the adviser or its representatives.
