If philanthropy is part of your financial strategy, you may want to think outside of the box and look for methods of giving that go beyond traditional monetary donations. Recent changes in the tax landscape may also be a reason to take another look at how you give financially. The following are four increasingly popular strategies that can work for you:
- Gift highly appreciated stocks or other assets
If you hold stocks or other investments for more than one year that have gained value, you may consider liquidating the asset to make a charitable donation. Doing so may result in a taxable long-term capital gain. One potentially more efficient way to maximize the value of your donation is to give appreciated stock directly to a charity. The charity would receive an asset it can continue to hold or immediately sell and you would not count the gift as taxable income. Additionally, the market value of the stock at the time the gift is made is would generally deductible from your adjusted gross income if you itemize your deductions (subject to income-based limitations). Check to ensure the charity accepts this type of donation before exploring it as a financial strategy.
- Establish a charitable trust
Another way to consider gifting assets is to set up a charitable trust. Trusts can help you manage highly appreciated assets in a more tax-efficient manner while, in some cases, allowing you to split assets among charitable and non-charitable beneficiaries. The timing of each gift and the flexibility you want dictates the type of trust that works best. With a Charitable Lead Trust, a charity is funded with income from assets placed in the trust for a specified time period. After that time, the remaining assets revert to other named beneficiaries, such as your heirs. In a Charitable Remainder Trust, the reverse occurs. The trust makes regular income payments back to you or another beneficiary. After a period of time specified in the trust, the remaining assets are directed to the named charities. These trusts have specific rules and are generally established through a professional. An alternative option is to choose a donor-advised fund, which allows you to make a large donation that may be immediately deductible from taxes, but gives you the flexibility to recommend gifts to charities spread out over a period of years.
- Maximize donations through your employer
Workplace giving campaigns are becoming increasingly popular. Your employer may offer the convenience of making contributions through payroll deductions, allowing you to give systematically with each paycheck. In addition, your employer may match a certain donation amount, which can add to the impact your gift makes. If you have access to these or other workplace giving programs, check to see if the charities you care about are eligible to receive this type of donation.
- Make a charitable individual retirement account (IRA) donation
If you have reached age 70-1/2, you are required to take distributions from your traditional IRA each year. If you don’t need the money to meet your essential and lifestyle expenses, you may prefer to avoid the resulting tax bill. An alternative is to take advantage of the Qualified Charitable Distribution rule. It allows you to transfer funds directly from your IRA to a qualified charitable organization. This is a tax-efficient way to shift up to $100,000 out of an IRA each year. By doing so, you may avoid having to claim income (and subsequent tax liability) since you would not receive the required distribution. If you have not yet reached age 70-1/2, you may want to consider this strategy as part of your retirement plan.
As you consider these and other gifting strategies, consult with your financial advisor and tax advisor. These professionals can help you evaluate the choices to ensure the gifts you make are most effective for your goals and consistent with your overall financial plan.
### Andrew R. Petty, CRPC®, APMA®, is a Private Wealth Advisor with Marlowe, Petty & Associates, a private wealth advisory practice of Ameriprise Financial Services, Inc . He offers fee-based financial planning and asset management strategies and has been in practice for 15 years. To contact him, please call 407-249-4006, visit his website at www.marlowepetty.com or stopover at his office at 10917 Dylan Loren Circle, Suite A, Orlando, FL 32825.
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