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Creative Year-End Giving Ideas

As the end of 2018 approaches, many people who regularly support charity are planning their annual year-end gifts.  A gift at year’s end can be a source of both satisfaction and tax savings.  Of course, taxes are not the reason people give, but there are ways to give that take advantage of saving opportunities:

  • Those who have reached age 70½ know they’ll need to take annual distributions from IRAs – and pay income taxes – whether or not they need the funds.  It’s possible to avoid income tax by telling the custodian of the IRA to send a check directly to charity.  There is no income tax charitable deduction allowed, but a qualified charitable distribution (QCD) saves taxes anyway.  For example, Jenny must take distributions of $46,000 this year, which may push her from the 22% to the 24% income tax bracket.  She will lose more than $10,000 of her distributions to income tax.  Jenny could, instead, tell the IRA custodian to send a check for $10,000 to her favorite charity.  Not only will Jenny save about $2,200 in income tax, but she may also reduce her Medicare premiums by reducing her taxable income.  IRA owners can give up to $100,000 annually, but the tax savings from a QCD are greatest where the gift takes the place of part or all of the donor’s required minimum distributions for the year.

  • It’s estimated that only about 12% of taxpayers will itemize in 2018, due to an almost doubling of the standard deductions and a reduction in certain itemized expenses.  Gifts to charity remain one of the few ways taxpayers can exceed the standard deduction.  Sally and Dave, both over age 65, have a standard deduction of $26,600 in 2018.  They normally give about $7,500 annually to their favorite charities, but the couple’s only other itemized deduction – state and local taxes, which is limited to $10,000 – will not allow them to itemize this year.  They could, instead, bunch three years’ worth of gifts in late 2018, which would put them at $32,500, far exceeding their standard deduction.  By bunching gifts, donors may be able to itemize every second or third year.  And if Sally and Dave use appreciated stock held more than one year to make their gifts, they save again by avoiding the capital gains tax they would pay if they sold the shares.

  • Many people own life insurance policies that are no longer needed for family security or to cover possible estate taxes at death.  A policy can be given to charity and may generate an income tax charitable deduction.

  • It’s possible to retain payments for life from a gift of cash or appreciated securities through a charitable remainder trust or charitable gift annuity, while also generating a larger charitable deduction that may enable donors to itemize.  For example, Bill and Donna, ages 78 and 77, have $150,000 in appreciated stock that they had planned to leave to charity in their estate plan.  They know they will not be subject to estate tax, so they’ve decided to accelerate their gift to a charitable remainder unitrust that will make payments to them for their lives, while also allowing them to itemize.  If their unitrust pays them 5% of the annual value of the trust, they will receive $7,500 in the first year.  Their deduction will be more than $80,000, assuming quarterly payments.  They can make additional contributions to their trust in future years, increasing their annual payments and giving them income tax deductions.

  • Even donors who don’t itemize may find tax benefits by making their gifts using appreciated stock, which allows them to avoid the capital gains taxes they would owe if they sold the shares.



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