It’s smart and responsible to take advantage of available tax benefits when giving to a worthy charity like Zion. Following are a few ideas you may want to implement before the end of the year.
Donating Appreciated Securities
Stocks and other securities like mutual funds that have gained value since purchase can be tax-efficient charitable giving tools. Don’t sell the investment, pay tax on the gain, donate the proceeds and take your charitable deduction on the value of the proceeds. Instead, donate your securities in-kind to the charity. By making the donations in-kind, you avoid the capital gains tax and are able to write off the fair market value of the stock on the day you donate it. The in-kind method results in more dollars to the charity and can also result in a higher tax deduction for you.
Required Minimum Distributions from your IRA
Over 72? If you haven’t already, make sure to take your Required Minimum Distributions (RMDs) from your IRA(s) or qualified plan(s) before Dec. 31, 2022. Failing to do so can result in a 50 percent excise tax based on the amount you should have taken. (If you turned 72 in 2022, you can delay your first RMD until April 1, 2023, but you’ll have to take two RMDs in 2023.) Are you in a position where your RMDs are beyond what you need to live a comfortable lifestyle? If so, it could be an opportunity for tax-advantaged giving. Excess RMDs increase your taxable income but can instead be donated to charity through what’s called a qualified charitable distribution (QCD). QCDs are made directly from your IRA to your named charity, instead of being distributed to you via an RMD. You can use a QCD to support causes you care about while reducing your taxable income.
Bunching
No matter how you give, whether writing checks directly to charities or in-kind securities or giving via donor-advised funds or a private foundation, it may be to your advantage to make many years’ worth of charitable donations in a single tax year. Use this method to increase your itemized deduction above the standard deduction for the tax year, potentially helping reduce your taxable income.
Be sure to talk with your financial advisor and tax professional to ensure the proper execution of any of the above plans.
For more information see the article “8 Charitable Giving Tax Strategies” by Marie-Claire Hart of Northwestern Mutual.
