As we approach the end of
the year, charitable giving is once again expected to ramp up between
Thanksgiving and December 31st,
and we at Edgemoor would like to share some advice with any clients that wish
to make donations. Although there is no wrong way to donate to charity, there
are steps you can take to minimize taxes and maximize impact.
Gifting Appreciated Stock
You can avoid taxable capital gains if you donate appreciated securities that have been held in taxable accounts for at least a year. This is preferable to selling the securities and donating the cash proceeds, because you avoid realizing long-term capital gains while still getting the full deduction for up to the fair market value of the donated securities if you itemize your deductions. We recommend donating the securities with the largest capital gains to maximize the tax benefits of charitable giving.
Making
Direct Donations vs. Funding Donor-Advised Funds
Appreciated securities may be donated either directly to
charities or to a Donor-Advised Fund (DAF). DAFs are investment vehicles for
giving to charitable organizations. Edgemoor offers DAFs through its
custodians, Fidelity Investments and Charles Schwab & Co.
Appreciated stock donations to DAFs have several advantages:
- You can choose the
charities that will receive grants from DAFs
- You can take the full
itemized tax deduction upfront for donating to DAFs and then distribute the
donated assets to the designated charities over time
- You can invest and grow
your assets donated to DAFs if you wait to distribute them over time
- You can get help from DAFs
to research charities, track your donations, and set up automatic recurring
donations
Fidelity
and Schwab both require a minimum initial balance of $5,000 for DAFs and
provide lists of select funds for investment of donations pending their
distribution to charities. For accounts exceeding $250,000 you can have your
DAF funds managed by your investment advisor. Administrative fees for DAFs
range from 0.10%-0.60% based on account size.
We at Edgemoor would be happy to provide allocation
recommendations free of charge for DAFs invested in the lists of DAF select
funds, or to manage DAFs exceeding $250,000. Setting up a charitable giving
account through a DAF is easy, and Edgemoor is ready to prepare all forms and
guide you through the process.
Donating
IRA Distributions
Clients over the age of 70 ½ who have an IRA can donate up to
$100,000 of distributions to charity instead of receiving it as taxable income.
We recommend using funds from non-IRA accounts for donations above the Required
Minimum Distribution amount. This strategy allows IRA assets to grow tax-free
for as long as possible, ultimately increasing the funds available for future donations,
expenses, and beneficiaries of Inherited IRAs.
Timing
Your Donations
You receive the itemized tax benefits from giving to charity,
either directly or to a DAF, in the year you make the donation. There is a
maximum deduction you can take for charitable giving which is a function of
your taxable income. Spreading out your donations over multiple years may
maximize your tax savings. However, if you have a higher than usual income in a
single year (e.g. from selling a family business), it may be best to make one
large donation to a DAF to reduce your large tax bill that year, then
distribute the funds to designated charitable organizations over multiple
years.
If you wish to receive tax
benefits in a certain year, the charitable organizations or DAFs must receive
your donations by December 31st of
that year. We recommend beginning to transfer assets at least several weeks
before the end of the year to ensure the charitable organization or DAF can
process your donations in time.
You should always consult your
tax professional about your personal tax situation.
Contacting
Edgemoor
If you have any questions,
please feel free to call 301-543-8881 or e-mail us at gtruscott@edgemoorinv.com.
