By Steven M. Rogé, MBA, CFP®, AIF®
Managing Director and Chief Investment Officer

Although we are big proponents of giving back to the community year-round, the Holiday season tends to make people even more generous than usual. Perhaps because we are headed into a New Year and are feeling grateful, or perhaps because we are in a more joyous mood being surrounded by family and friends. Whatever the reason, there are a few different ways to consider donating that could save you money on taxes while providing your charity of choice with the maximum benefit – without using cash.

A donation must come from somewhere, and cash is fast, easy, and accepted everywhere. But that cash donation could potentially be costing you more than it needs to. The cash you give has been taxed at some point, perhaps at ordinary income rates of up to 37 percent. Then add on your state income tax, or capital gains taxes, or a 3.8 percent net investment income tax, and the cost of your donation was more than the amount your charity received. If you don’t utilize charitable gifting strategies permitted by the tax code to the fullest advantage, you could be losing out on valuable savings.

Here are three different ways to improve the impact your donation will make.

  1. Appreciated Securities. When we talk about appreciated securities, we are usually talking about stocks, however, other investment assets may be donated as well. These appreciated securities should be in a taxable brokerage account. Instead of selling the stock and realizing capital gains, you can donate those shares directly, avoiding the capital gains tax. The charity can accept these shares and sell them off tax-free, generating the cash they need. In essence, you can maximize your after-tax donation, and the charity can use its tax-free status to its benefit.
  2. Donor Advised Fund. Do you make recurring donations? The Donor Advised Fund is an affordable way to move appreciated securities from your taxable brokerage account to another account earmarked to make donations in its name. You can take advantage of itemized deductions by grouping donations all in one year, and then spreading the donations out over many years. Conversely, you can gift a little each year to your own Donor Advised Fund, which is a great way to give back while also diversifying out of a concentrated stock position. Simply gift the appreciated shares into your Donor Advised Fund, and then sell that stock and build a diversified portfolio with the goal of growing the Fund for even bigger donations over time.
  3. Qualified Charitable Distributions. Another popular option that donors often overlook is Qualified Charitable Distributions – or QCDs. This strategy can help you avoid taxes on distributions from your retirement accounts. Those aged 70 ½ or older can make direct, tax-free transfers from their IRAs to a charity of their choice. This charitable distribution comes directly out of your retirement account and can satisfy your Required Minimum Distribution (RMD) for the year if it’s at least equal to the amount of your RMD for that year. This can help you avoid taxes on these distributions.

While there are many ways to give back during the Holiday season, make sure you are taking advantage of all available opportunities. Our team of knowledgeable CERTIFIED FINANCIAL PLANNERS™ (CFP®) can help determine if these strategies are right for you.
If you are interested in learning more about tax-advantaged charitable gifting strategies, please contact us at 631.218.0077. We would be happy to go into further detail and answer any questions you may have.

R.W. Rogé & Company, Inc. is a fee-only financial planning and wealth management firm serving clients locally and virtually across the country, with Long Island, New York, Beverly, Massachusetts, and now Naples, Florida office locations. We help clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, click here.

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