Back to Insights  /  Read More About Financial Planning

Read More About Investment Management

Give Smart by Employing Available Tax-Saving Strategies

Genevieve E. George, CPA, CFP®, CFE, CDFA®

05/05/2022

Our motivations for giving are generally derived from caring and a desire to give back in light of our own good fortunes. The more complex your financial picture, the more you should be working with your advisors to employ the most tax-wise gifting strategies. I’m not suggesting you let taxes drive your gifting, but rather allow your team of advisors to advise you about tax implications and incorporate the most tax-efficient strategies when possible.

Tax treatment of charitable gifts
Charitable contributions are deductible to up to 50 percent of your adjusted gross income (AGI), computed without regard for net operating loss carrybacks. This is reported on your Schedule A, itemized deductions. If your contributions exceed your AGI limitations for a single year, you can carry forward the benefit for up to five years. If you don’t itemize, or your contributions do not exceed your standard deduction, the tax benefits of giving are significantly less. However, don’t let that detour you from giving. The organizations you support are grateful for any and all gifts, regardless of the tax benefits you might be receiving.

Gifting RMDs
When you hit the required minimum distribution (RMD) age, currently 72, you begin taking distributions from your IRA accounts based on a formula. These distributions are calculated for tax purposes as ordinary income. If you didn’t take distributions before age 72, your balance could be sizable and the related distributions may be enough to push you into a higher tax bracket.

The qualified charitable distribution (QCD) is an option if you don’t need the additional cash flows from your IRA accounts upon reaching RMD age. Distributions from your IRA of up to $100,000 can be made directly to a charitable organization. Since the funds go directly to the charity, the distribution is not reported as income on your tax return. A couple items to note here: First, if you utilize the QCD, you cannot also claim a charitable deduction on your Schedule A for the same contribution. You can claim other charitable contributions on your Schedule A, just not the QCD. Also, the QCD funds cannot be contributed to a donor advised fund.

Gifting appreciated stock
Charitable giving is not limited to the cash you have available. If you are holding appreciated stock in your non-retirement portfolio, gifting stock may provide some additional tax benefits.

For example: Susan holds appreciated Amazon stock at a significant gain. If she wishes to contribute $10,000 to a charity, she can either sell the stock or gift it. Let’s say her basis in the stock is $2,000; she has an $8,000 capital gain. If she sells the stock, she will pay capital gains taxes on the sale—assuming 20 percent in this situation—of $1,600. So to give $10,000 cash, it will cost her $1,600 in cash and provide, at 50 percent deductible, a tax benefit of $5,000. However, if she donates the stock directly to the organization, she will receive the full amount as a tax benefit and not have to pay capital gains taxes. Particularly if she is in a higher tax bracket, that will produce significant savings.

Donor advised funds
Donor advised funds are a great way to give, particularly if your financial plan includes gifting for years into the future. This is an especially good tactic if your tax liabilities for the current year are higher than normal, perhaps as a result of a business sale or other income-triggering event. Front-end loading your charitable giving into a donor advised fund will allow you to take the full charitable deduction this year and control the distribution of the donations for subsequent years.

For example: A client sells their business and has a higher tax liability for 2022. They generally give $20,000 total per year to various charities. For 2022, they can contribute $100,000 to a donor advised fund (cash or stock). For 2022, they will receive the tax benefits of contributing $100,000. Then in 2023 and forward, they can distribute their regular $20,000 per year to their qualifying charities of choice. They will not receive the tax benefits of the $20,000 contributions, because they previously received the benefits when they made the contribution to the donor advised fund. These funds are available through most financial institutions as well as through local community foundations.

While tax considerations shouldn’t determine how you give, contributing in a tax-wise manner might even allow you to make larger charitable contributions by saving you tax dollars.

IMPORTANT DISCLOSURES

The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.


Speak to an Advisor

First Name*
 
 
 
 
Last Name*
 
 
 
 
Email Address*
 
 
 
 
Phone Number*
 
 
 
 
Zip*
 
 
 
 
Message