It has been said that money can’t buy happiness.

Although this expression has sparked many lively debates, we can now officially debunk it. In fact, numerous studies have shown that gifting quite literally makes the giver happier1, in short buying happiness.

It should also come as no surprise that for many people, “gifting” is an essential component to their financial plan. Often when people decide to make a gift, they simply write a check from their bank account. However, with some thoughtful planning, there are gifting strategies that can be beneficial from a tax perspective as well.

So, before you write those year-end checks to charities consider the following strategies.

“We make a living by what we get. We make a life by what we give.”

–Winston Churchill2

Gifting Stocks
One of the simplest ways to gift to charities and create a tax benefit for yourself is to gift appreciated stock.

For those with a taxable investment account, there may be stocks that were purchased years ago that have appreciated in value and are now impossible to sell without creating a major tax liability. For example, if you purchased Apple stock 10 years ago, today, even with market volatility, you would have substantial gains if you were to reposition that holding.

Incidentally, repositioning a portfolio’s stock holdings can create challenges such as over-concentration in a single position or a portfolio that is out of balance with your current risk tolerance. When the tax exposure is significant, many people choose to continue holding the stock rather than pay the hefty tax bill that would come with repositioning.

However, if you gift the stock to a charity, you are able to deduct the fair market value of the gift3 and the charity will not have to pay the capital gains tax if and when they sell the position.

If you are over 70 ½ and have a tax-deferred IRA using the Qualified Charitable Distribution (QCD), this strategy is worth considering as any portion of that distribution (up to $100,000 annually) that is gifted to a qualifying charity is exempt from income taxes.4

Since the ability to use the QCD begins prior to the age you are required to draw minimum distributions and pay income tax on those distributions (age 72), it provides a mechanism for reducing the size of the IRA and upcoming tax liabilities.

Tangible Gift Giving
Beauty and value are in the eye of the beholder, which is why is it always important to consider tangible or gift-in-kind (GIK). GIKs are a type of charitable giving in which contributions take the form of tangible goods rather than money—whether they be supplies, equipment and materials, or services and time.

A possession that may present a conundrum for you (e.g., an old car, an inherited niche asset, etc.) may be an asset that a charity can put to work. Every charity has different capabilities and interests, so it is important to do your research. Not every tangible asset that an individual is interested in gifting is the right fit for a charitable donation, but sometimes gifting a tangible asset can be a valuable gift for a charity and result in a helpful tax deduction for the giver.

Deductions for a GIK contribution are based on the fair market value if you itemize deductions.5

Donor-Advised Funds
A Donor-advised fund is a strategy that has gotten a lot of attention in recent years.

They provide a deduction in the year the gift is given, but allow the gift to be distributed over a number of years.6 Donor-advised funds can be a powerful tool for charitably minded individuals who are looking to reduce tax liability in particularly high income years.

Charitable Remainder Trusts and Charitable Annuities
Charitable remainder trusts and charitable annuities represent a sophisticated body of gifting strategy that allows, for example, someone to make a substantial gift to charity and then receive an income benefit from that gift for the remainder of their life, or provide an income benefit to a charity and then have the remainder of the asset go to their children.

These strategies can have significant tax benefits, but it is important to note that the ultimate intent must be charitable for them to make sense.

Testamentary Gifts
Finally, it is always important to consider testamentary gifts, or gifts that are made through your estate plan and designed to take place after you have passed.

This can be an effective strategy for giving without concerns about depleting assets or reducing cashflow while you are alive. It is also worth considering if you would like to identify a specific charity to receive donations in lieu of flowers once you have passed.

For the charitably minded individual, a thoughtful gifting strategy is a necessity. The strategies listed above are not exhaustive but are meant to convey that with a little forethought, it is possible to do both good and well.

A qualified team of trusted advisors can help you develop a customized gifting strategy that meets your charitable goals and maximizes tax efficiency.

Roehl & Yi Investment Advisors can assist you in your financial decision making.

Written by: SARAH MELLGREN, JD, CFP®, Roehl & Yi







This content is provided for informational purposes only. Nothing herein should be construed as the provision of personalized investment advice, nor should it be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without prior notice. Third-party data sources contained herein are for illustrative purposes only, are believed to be reliable, but we take no responsibility as to their accuracy. The content contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially. As such, there is no guarantee that any views and opinions expressed herein will come to pass. Investing involves risk of loss including loss of principal. Past investment performance is not a guarantee or predictor of future investment performance.

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