By Rebecca Rothey, Vice President of Development and Senior Philanthropic Advisor
As the end of the year approaches, now is the time to plan for your charitable giving! The Community Foundation is here to help make your giving wise, simple, and fun. Here are a few tips of how our donors have maximized their assets to make powerful and meaningful gifts.
Tip One: Use Appreciated Assets to Diversify
If you own appreciated assets, such as stocks, that you’ve held for more than one year, consider gifting them first. When you make a gift of an appreciated asset you can benefit in the following ways:
Receive an income tax deduction for the fair market value of the transferred stock.
Avoid capital gains tax, regardless of how much your stock has appreciated.
For an added benefit, if you make a gift of stock rather than cash, you can use the cash you would have given to purchase more of the same stock. As a result, you will have made your gift and you still own the same stock—only now with a higher cost basis. Some donors who are concerned about a possible pending recession have used gifting to a charitable fund as an opportunity to diversify and create a pool of charitable assets, capturing gain into a fund ahead of a downturn and investing the charitable fund in cash to preserve value.
One of our long-time donors follows market activity closely. Rather than wait until year-end, he gives when he believes the market is likely at the highest it will go that year. Last year, he gave in August, gifting his stocks at their highest value before the market declined in September.
Tip Two: New Tax Laws Reward Cash Giving
Last year, one of our donors opened a substantial fund after selling her home. While she had a capital gains tax liability from the sale, the higher deduction for cash made the transaction a wash for income tax purposes.
If you are fortunate to be in a position to give a large sum in one year or over multiple years, speak with your accountant about the possible benefits of giving cash. Although it is usually better to gift appreciated assets because of the capital gains tax avoidance, under the new tax law you may now deduct up to 60% of your adjusted gross income for gifts of cash. Consider front-loading a charitable fund at The Community Foundation, maximizing our charitable income tax deduction in that year or up to five years using the carry-forward charitable deduction.
Tip Three: Unique Benefits from IRA Gifts
If you are over 70.5 and are not already doing so, consider making a gift directly to The Community Foundation from your IRA. While you may not make an IRA Charitable Rollover gift to a donor-advised fund, there are several options for establishing other types of funds that will help you achieve your charitable goals while simplifying your giving. Benefits of a charitable IRA gift include:
Reduce Your Taxable Income: By rolling over some or all your RMD from your IRA to charity, you can reduce your taxable income this year.
Lower Your Social Security Tax: Reducing your taxable income with an IRA rollover gift may also reduce the tax due on your social security payments.
Avoid IRS Tax Limits: IRA rollover gifts may be made over and above the normal cash gift limit mentioned above.
No Need to Itemize: If you do not itemize your deductions, you can still benefit from the reduction in income and tax resulting from an IRA rollover gift.
One of our donors shared that he and his wife are delighted to simplify their IRA giving through a fund at The Community Foundation. They have an additional donor-advised fund as well, for gifts outside their IRA giving.
Tip Four: Don’t Forget About Property
One of our donors is a couple who earned income from rental properties, but decided they no longer wished to manage them. Rather than sell the properties and pay the capital gains tax, they gifted two of their houses directly to a donor-advised fund at The Community Foundation. They were able to take a charitable income tax deduction for the full fair market value of the property and created a fund their children will advise when they’ve passed away.
If you own property, such as a second home, commercial, or rental properties, consider gifting all or a portion of the property directly to a charitable fund.
We hope these tips offer new ways to think about your charitable giving! Your giving is instrumental to making the Greater Washington region a more thriving, just and enriching place to live for all.
If you have questions or would like more information, contact Rebecca Rothey, rrothey@thecommunityfoundation.org or 202-263-476.
Disclaimer: The Community Foundation does not provide tax or legal advice. Please consult your advisor before making a gift.
Rebecca Rothey, CFRE, CAP®, AEP®, gave an engaging presentation on Working with Professional Advisors to a packed room at the annual Practical Planned Giving Conference.