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May 05, 2022
Reasons for Making a Charitable Gift:
There are numerous ways to give to charities. Below are Narwhal’s most popular strategies when it comes to charitable giving.
1. Give appreciated non-cash assets instead of cash
This strategy is advantageous for those who itemize their tax deductions. In addition to claiming a deduction for the fair market value of an asset, donors can potentially eliminate the capital gains tax they would otherwise incur if they sold the asset and donated the cash proceeds. This results even more going to the charity and less to taxes. See example in figure 1 below.
2. Bunch itemized deductions
Some donors may find that the total of their itemized deductions for a certain tax year will be slightly below the level of the standard deduction. You may find it beneficial to bunch two tax years of charitable deductions into one year and take the standard deduction on the other year. See example of bunching in figure 2 below.
3. Make a Qualified Charitable Distribution of IRA assets
Whether you itemize or claim the standard deduction, if you are age 70 ½ or older, you can direct up to $100,000 per year tax-free from your Individual Retirement Accounts (IRAs) to operating charities through QCDs. By reducing the IRA balance, a QCD may also reduce the donor’s taxable income in future years, lower the donor’s taxable estate, and limit IRA beneficiaries’ tax liability. See below for an example of a QCD and the tax implications of such.
As an example of the potential tax savings of a QCD, consider a hypothetical donor, Bob, who is a single tax-filer with anticipated ordinary income of $80,000 in 2021. Bob is 73 years old in 2021 (which means he falls under the old RMD rules) and takes a distribution from his traditional IRA. In this instance, Bob's IRA is valued at $1,050,000, resulting in a projected RMD of $42,510 ($1,050,000 divided by the IRS mandated age 73 distribution period amount of 24.7). The figure 3 below for an illustration comparing a cash gift of $42,510 with a QCD for $42,510.
Sources:
https://www.schwabcharitable.org/non-cash-contribution-options/making-qcds
https://www.schwabcharitable.org/maximize-your-impact/2021-strategies
Index:
FIGURE 1: Donating vs Selling Appreciated Stock Positions
FIGURE 2: Tax Benefit of Bunch Itemized Deductions
FIGURE 3: Qualified Charitable Distributions of IRA Assets
Financial Planning Associate
Melissa joined Narwhal in 2018 after completing her master’s degree in financial planning from the University of Georgia, where she also earned her bachelor’s in consumer economics. Her interest in the field began with a curiosity about how people make money decisions—and the emotions behind them. She earned her CFP® certification in 2021 and takes a financial therapy-informed approach to help clients find clarity, confidence, and direction in their financial lives.Melissa lives in Smyrna with her husband, Matt, their baby boy Emmett, and two dogs, Remi and Neely. Outside of work, she enjoys hiking and traveling with her family, practicing yoga, and soaking up slow moments at home.
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