As we come to the end of the year and consider all the components of our lives, loved ones, and charitable goals, we look to our financial advisors and licensed tax professionals for advisement around charitable gift strategy and charitable donations according to our timelines and financial goals. With short term and long term planning, professional analysis and projections are helpful. Licensed estate planning and licensed financial professionals have also been keeping a close eye on charitable gifting strategies with changes in the legal system to advise clients. With dialogue and governmental votes around tax code changes, what are current tools for year-end to efficiently donate to charities we care about? For the latest tax guidelines: www.irs.gov will provide up to date information. Here are some ideas for short term and long term strategies:
Outright Gifts: Appreciated stock, cash or check donated to an IRS recognized charity. Most publicly traded securities with unrealized long‐term gains (meaning they were purchased more than a year ago and have increased in value) may be donated to a public charity without the need to sell them first. When the donation is made, the donor may be able to claim the fair market value as an itemized deduction on their federal tax return. Other types of securities, such as restricted or privately traded securities and donations to nonpublic charities, may also be deductible, but additional requirements and limitations may apply. When the securities are donated, no capital gains taxes are owed because the securities were donated, not sold. The greater the appreciation, the bigger the tax savings may be. Ensure you have the correct receipt and itemized list to file for tax deductions under your adjusted gross income.
Required Minimum Distributions (RMDs): Review mandatory rules around pretax retirement account distributions. These accounts may have names titled: Traditional IRA, 401K, 403b, SIMPLE, SEP, Rollover IRA (Pretax Retirement Accounts). If RMDs are gifted directly to a charity, the distribution is satisfied and not counted as taxable income to the owner of the account. This can be in a mutual fund or annuity investment.
Life Insurance: Name a charity as an owner, beneficiary, or both of a life insurance contract to receive tax advantaged strategies. Consult your licensed professionals for advisement which can encompass income replacement, and gifting strategy.
Donor Advised Fund: Established at foundation, (i.e., InFaith Foundation, St. Paul Foundation, Minneapolis Foundation) put money into a fund to give one or multiple charities an income stream based on your time table and interests.
Wealth Replacement: Consider how much money you want to leave to a charity and heirs. Purchase a life insurance policy for the same amount as you gift to a charity. Name heirs as beneficiaries to the life insurance policy, take a deduction on the charitable gift and at your passing the heirs receive the life insurance policy benefit income tax free.
Trust and Will bequests: Inside of a will or trust, take advantage of the charitable gift provisions for you and spouse. Upon your death, or death of your spouse, your estate may receive a charitable deduction for the value of your bequest. Again, consult your licensed legal and financial advisors to review your goals, assets, and tax situation.
May this article spark interest, and support your thoughts and ideas to enhance outcomes for yourself, family, and not for profit groups you hold dear. A number of licensed legal and financial support professionals are available to support your analysis, goals and decisions. Reference RIS Chartable Contribution Tax Tips and consult with a trusted licensed professional. We thank you for your consideration, and work to provide helpful information for the families in our community.