Timothy D. Quinn | Senior Vice President, Trust Officer
Charitable planning is usually a topic for year-end. But the end of the year is always busy, and perhaps you did not get around to this important financial consideration in 2023. It has been said that a belated achievement is better than not reaching a goal at all.
There are several great reasons to start now with your plans regarding charitable giving while it is still early in the year.
More time: You now have time to review your charitable giving options, thereby creating a roadmap to execute during the year. This roadmap will allow you to tailor your charitable giving intentions to match your giftable assets. It also aids you in leveraging your gifts into the most tax-efficient methods that align with your financial situation and your giving goals.
More Tax Planning: The manner in which charitable gifting is done can matter as much as the amount of the gift. There are many ways to give, and now is a great time to find which methods of gifting options fit your plan the best. Whenever possible, you will want to match your charitable giving plans to the most efficient tax benefits. These will vary depending on various factors, such as how you file your income tax returns if you have an IRA, and what type, etc. You will always want to incorporate consultation with your trusted financial advisors in your planning and document everything. Save those tax receipts and any charity gift acknowledgment or thank you notes.
The stock market ended on a high note at the end of 2023, so it is an appropriate time to review your end-of-the-year investment portfolio. This is the opportunity to analyze if your asset allocation has gotten out of balance with your risk tolerance. A donation of appreciated stock might aid in the rebalancing process and provide a gifting opportunity. Donating stock that has appreciated for more than a year allows you to add punch to your charitable donation. By giving the appreciated security directly to the tax-exempt nonprofit, you can avoid the capital gains taxes that you would pay if you sold the asset and then donated the proceeds to the charitable organization. Note that you get a charitable tax deduction only if you choose to itemize and do not utilize the standard deductions available for 2024.
There are some tax-advantaged charitable giving options available for those who do not utilize the standard deduction on their income taxes. Known as a Qualified Charitable Deduction (QCD), it allows individuals aged 70 1/2 and older to make tax-free donations directly to a qualified charity. A charitable deduction is not earned with this giving method, but the donated amount is excluded from the donor’s taxable income. It requires implementing a direct transfer of funds from your IRA custodian to a qualified charity. It can count toward satisfying a yearly required minimum distribution, and since it is able to lower ones adjusted gross income (AGI), it potentially can lower the impact of taxes related to Social Security and Medicare. A QCD can only be done for the current year, so a 2024 QCD must be completed by 12/31/2024. For 2024, the limit for a QCD donation indexed for inflation is $105,000. Work directly with your tax advisor and your IRA administrator to avoid any unintended missteps with IRS requirements.
More Research: If you are still unsure of which charities you want to support, you now have the time to research more about the mission of the nonprofit organization and how your gift might be used. Websites like Charity Navigator and Guidestar.org provide databases that allow you to look at a nonprofit’s mission, financials, leadership, and board makeup. While these are good places to start research, also consider reaching out to meet with charity representatives in person or by phone. Perhaps seek out volunteer opportunities in addition to gifting so you can learn more about how the organization operates. If you already have a passion for certain causes, start there. Consider charities that have enriched your life, such as colleges or religious organizations, or ones that are doing important work in your community.
Be sure to inquire about matching campaigns for charitable gifts. It is estimated that around 65% of Fortune 500 companies have matching campaigns for employees, but so do many smaller firms, which strive to engage their staff in support of the communities they serve and foster a philanthropic culture. Many nonprofits also offer matching opportunities for either special campaigns or in response to donors who also seek to leverage their gifts by agreeing to match other individual donations up to a certain level.
Another giving strategy to investigate if you are currently unsure of which charity to direct your gift to might be a donor-advised fund (DAF). A DAF allows for a gift to be made and a tax deduction to be granted, but the actual charity to receive the funds can be named in the future. Donor-advised funds are managed by sponsoring organizations, which are public charities. These can be Community Foundations and other non-profit organizations. Some financial service firms, such as our firm, Argent Financial Group, Inc., have established non-profit arms. Argent Foundation is a public charity offering donor-advised funds to support our clients charitable giving goals. Donor-advised funds also provide other benefits such as the ability to make contributions anonymously or to create “In Memoriam” funds. These types of vehicles are often used with families that want to include family members in the grant decision making and teach younger family generations about the philanthropic process.
Time to Reflect: Once you have completed your charitable planning roadmap for the new year, you may find it helpful to extend your focus beyond the current year and begin to think about legacy gifts. Giving during a lifetime lets you see your gift at work. Some donors may prefer to have their assets available for their use during their lifetime and then transfer gifts to a charity at death, via a will or a trust. A split-interest gift can be set up under a variety of trust strategies that allow one to receive current income with a remainder interest going to a charity at a future time or provide current income to a charity with the remaining principal to beneficiaries chosen by the donor. There are many options to consider that are beyond the scope of this article but well worth the time to learn more about. The flexibility to create a gifting strategy that can have a multiple generational impact on your heirs and the charities you support may be a good goal.
The process of charitable gift planning can be simple or complex, but the advice and guidance of your legal, tax, and financial advisors is wise and advisable.
