Amid the bustling holiday shopping season, many people take this time of year as an opportunity to contribute to their favorite charities, non-profit organizations, churches or synagogues. Aside from the warm feelings you receive by making a gift to a cause you support, there are tax benefits to be aware of, too, some of which will ensure more dollars go to your charity. Here are a few strategies to consider when spreading holiday cheer this year.
In prior years, if you were age 70½ or older, you could gift up to $100,000 directly from your IRA to a qualified charity and exclude this IRA distribution from your Adjusted Gross Income (AGI) for tax return purposes. Unfortunately, this provision expired at the end of 2014 and has not yet been reinstated for 2015. There have been discussions in Congress about reinstating this provision retroactively for 2015, however, that decision won’t likely be made until mid-December. If it is not reinstated and you make a gift directly from your IRA to a charity, the gift will be treated as a “cash” gift and qualify as an itemized deduction.
Most donors make their charitable gifts by sending a check or using a credit card. Consider another option, though. If you hold highly appreciated securities in your portfolio, it will cost you less to gift appreciated securities to the charity since you (or the charity) will not have to pay income taxes on these embedded capital gains.
Depending on the number of gifts you make and the size of the gifts, the use of a donor-advised fund (DAF) may be an appropriate strategy to help achieve your gifting objectives in the most income tax and administratively efficient manner. A DAF allows you to gift appreciated securities to the fund and then make periodic grant distributions to the charitable organizations of your choice. These grant distributions do not have to be made in the same calendar year as the initiate contribution to the DAF. Since you receive the income tax deduction for the gift when the contribution is made to your DAF (not when the grant distribution is made to the charity), this strategy allows you more flexibility in timing your charitable deductions in certain calendar years.
DAFs can be used as a cost-effective alternative to a family foundation. You can allow other family members to request grant distributions and name a successor(s) to the DAF at your death so that your children can continue to support the charitable organizations they wish to help. In addition to highly appreciated stocks, you can gift real estate, business interests and private equity to a DAF.
Gifting strategies should be tailored not only to your interests, but also to your specific financial situation and objectives. If you are confused about the various options, we can help.