Methods to choose one of the best year-end charitable giving technique


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As the holidays approach, philanthropic investors can keep an eye on year-end gifts for their favorite charity. However, according to top consultants, there are several options with different tax benefits.

According to a study of philanthropy by Bank of America, nearly 90% of wealthy families were donating to charity in 2020.

“The conversation begins with getting a complete financial picture of a client, what they have done in the past and what their intentions are for the future,” said Ryan Cole, a certified financial planner, vice president and director of financial planning at Bailard in San Francisco 97th place on CNBC’s 2021 FA 100 list.

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Investors looking to break down deductions may take a depreciation based on a percentage of their adjusted gross income, depending on the type of asset they are granting.

While someone can deduct up to 100% of their Adjusted Gross Income on cash gifts for 2021 – and couples who don’t break down can claim up to $ 600 – donating cash may not offer the greatest write-off.

It may be a better option to donate investments that are well above their purchase price, as this helps the customer to avoid the capital gains tax otherwise incurred when selling.

“We strive to offer the assets that are most valued in a client’s portfolio,” said CFP Rachel Moran, shareholder and director of personal wealth management at RTD Financial in Philadelphia, number 68 on the FA 100 list.

“You’re just wiping out that capital gain,” she added.

Qualified charity payouts

Retirees 70 ½ years of age and older may consider what are known as qualified charity distributions, which are a direct payment to an eligible charity from an individual retirement account.

Someone can send up to $ 100,000 a year without increasing their income, and it meets the minimum payouts required for retirees 72 and older.

“We are actually using this strategy to try to reduce a customer’s income in order to keep them under [the thresholds] for higher Medicare premiums, “said Moran.

Of course, retirees need to weigh how much income they need before making these transfers, Cole said.

Funds advised by donors

While qualified charitable distributions can work for individual retirement accounts, someone with assets in a taxable account may consider donor-recommended funds that allow for multiple gifts over time, Cole said.

“There are non-profit benefits too,” said Cole, explaining how giving away highly valued assets can also help realign a client’s portfolio.

If someone is unlikely to be listing prints, they might consider “bundling” several years of gifts into one donation to exceed the standard trigger, Cole said.

It’s a lovely way to formally track the history of gifts and any appreciation through investment growth.

Rachel Moran

Director of Personal Wealth Management at RTD Financial

The money can grow over time, and they can make gifts from the fund as they see fit.

“It’s a lovely way to formally track the history of gifts and everyone’s appreciation through investment growth,” said Moran.

However, donor-recommended funds may have minimum accounts, and investors pay annual fees based on account balance.

For example, Vanguard Charitable and Fidelity Charitable charge 0.6% on the first $ 500,000 plus investment fees.

Private foundations

While donor-recommended funds offer simplicity, individuals or families with significant wealth can create a private foundation that starts funding from around $ 1 million, depending on the client, said Cole.

While private foundations offer families more control, they are significantly more expensive, with startup costs of $ 4,500-25,000 in legal fees, plus annual operating costs, according to the American Endowment Foundation.

Additionally, private foundations are required to distribute a percentage of non-profit assets each year in order to stay compliant with the IRS.

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