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Firm Updates & Advisor Advice
November 8, 2022

Thanks-Giving Strategies

Aaron Evans, CFA
As you consider your charitable giving this season, here are a few ways to do so in a tax-efficient manner.

With the holiday season rapidly approaching, many of us are well underway in our annual gift-buying process. We are reviewing the unsolicited catalogs that arrived in our mailboxes, scrolling through websites/social media and even old-school window shopping. And while we search for that perfect something for everyone on our lists, it is also the time of year when we often give back to organizations and charities that are important to us. As you consider your charitable giving this season, here are a few ways to do so in a tax-efficient manner:

Appreciated Securities

Utilizing investments with long-term unrealized capital gains rather than cash is a popular tax-efficient way to give. A stock or fund donation can be claimed as an itemized deduction, with the added benefit of the associated taxable capital gains being passed on to a non-taxable entity. The higher the gain, the more the tax benefit. Check with your charitable organization on specifics regarding making a gift of securities to their organization.

Qualified Charitable Distributions (QCDs)

If you are over 72 and taking required minimum distributions (RMDs) from an IRA, you are eligible to utilize those RMDs to make tax-efficient charitable donations. These Qualified Charitable Distributions (QCDs) can be made directly to not-for-profit organizations gross of any income tax liability, with the amount (up to $100k annually) being applied towards your annual RMD. This strategy is a great option to minimize income taxes while still maintaining full use of the higher standard tax deductions implemented in 2018.

Donor-advised funds (DAF)

DAFs are giving vehicles that provide donors with lots of flexibility. Appreciated securities or cash can be contributed to a DAF, allowing for a tax deduction in the year they are made. From there, donors can decide on amounts, timing and the target charities for distributions over time. This is a great strategy to be employed in a year of high earnings or if you are uncertain about your current charitable intent. Additionally, this strategy may allow for the itemization of deductions above the new standard amounts by making larger donations to the DAF every few years, while still directing charitable gifts annually.

Before employing any of these strategies be sure to consult your tax professional, legal counsel or financial advisor.

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