Giving Thanks and Giving Back

The holiday season is here, which for many of us means large family dinners and time spent reflecting on what we're grateful for. While in years past the focus has been on Black Friday deals, more recently there's been a shift toward giving instead of buying. With Giving Tuesday right after Thanksgiving, it's the perfect opportunity for us to discuss year-end charitable donations.

Giving Tuesday isn't only about money. Sure, it's great to make a monetary donation to an organization you care about (which often comes with tax breaks), but there are other ways to give back too, like making someone smile or lending a helping hand.

Here are a few strategies to consider if you want your year-end charitable gift to have the most impact.

1. Give long-term appreciated securities

Contributing stocks, bonds, or mutual funds that have increased in value over time to philanthropic organizations is a method of charitable giving that has become more popular recently. For example, certain publicly traded securities and other types of security may be tax deductible based on a few requirements and limitations, with the amount deducted being up to 30% of the donor’s adjusted gross income annually. Furthermore, gifting shares of company stock can help diversify a donor's portfolio. This can be complex, so be sure to talk to your financial advisor for guidance.

2. Use required minimum distribution on IRA for donation

For those who are withdrawing their required minimum distribution (RMD) from their IRA based on their age, an often overlooked option for satisfying the RMD is to donate directly to a qualifying charity. This has the double benefit of reducing your taxable income and supporting a cause that is important to you. There are a few restrictions to be aware of when making a charitable donation from an IRA. First, the donation must be made directly from the IRA to the charity. Second, the maximum amount that can be donated is $100,000 per year. Finally, the donation can only be made to a qualified charity as defined by the IRS. However, if you are looking for a way to reduce your taxes and support a worthy cause, using part or all of your RMD to make a charitable donation is an excellent option.

3. Establish a Donor-Advised Fund

A donor- advised fund (DAF) is a charitable giving account that allows the donor to make a gift and qualify for a charitable deduction immediately, without having to decide instantly which charity or charities they would like to support. Furthermore, the funds in a DAF can grow tax-free until the donor is ready to make recommendations for grants.

4. Consider a bunching strategy

The "bunching" strategy is a way of making the most out of a donor's deduction by having them make several years' worth of contributions at once, followed by one or more skipped years. This can be beneficial when the donor's deductions for a single year fall below the standard deduction amount, as lumping multiple years together may put it over and allow for tax-saving opportunities. Of course, this approach requires donors to have solid financial standing.

As a reminder, the deadline for year-end charitable giving for 2022 is Saturday, December 31, while the last day for 2022 grant recommendations from DAFs is Tuesday, December 27. 

If you're undecided about how to best approach your year-end charitable gifts, please reach out and schedule a call or meeting. I'd be more than happy to discuss the various options with you and help you find the strategy that fits best into your overall financial plan.

And, of course, Happy Thanksgiving!