Charitable donations aren’t made for the tax write-off, but if you’re going to donate, you might as well do it tax efficiently! Gifting appreciated stocks and making qualified charitable distributions are two strategies to consider.
Gifting Appreciated Stocks
Instead of donating cash, consider gifting long-held appreciated stock. This will allow you to avoid the capital gains tax while still receiving the charitable deduction for the full value of the stock at the time of the gift.
Rules to remember!
- The stock position must have been held for a minimum of one year for you to receive the greatest benefit.
- In contrast, if the stock has been held for less than one year, the value of the gift will be equal to the cost basis instead of the value.
- High-income donors may be subject to a partial phase-out of itemized deductions, but any excess can generally be carried forward and deducted over as many as five subsequent years.
- Your custodian will require a detailed letter of instruction in order to transfer the shares, so give yourself ample time before year-end to execute the gift.
Qualified Charitable Distributions
For those over age 70 ½ with IRA assets, the IRS allows you to send funds directly from your IRA to a qualified charity. This action is called a Qualified Charitable Distribution (QCD) and…
- QCDs are not reported as taxable income on your tax return, so you don’t need to itemize your deductions to realize the benefits of the donation.
- Even though the QCD would lower your itemized deductions, it could be more efficient to minimize your taxable income than maximize your itemized deductions.
- QCDs lower your Modified Adjustable Gross Income (MAGI), which is used to determine your Medicare Part B premium. You may be able to save hundreds of dollars a year in Medicare premiums by lowering your Modified AGI.
- QCDs count towards satisfying your required IRA distributions.
Rules to Remember!
- QCDs may be made from Traditional, Inherited, and Rollover IRAs. SIMPLE and SEP IRAs are also eligible if the plans are inactive.
- You must be 70½ or older to make a QCD.
- QCDs only apply to IRA distributions that would be taxed as ordinary income (QCDs from non-deductible IRAs are not allowed).
- The maximum annual QCD per tax payer is $100,000 (2019).
- Funds that are distributed to you first from the IRA and then donated do not qualify as a QCD.
- The receiving charity must be a 501(c)(3) and be eligible to accept tax-deductible contributions
- Private foundations, supporting organizations, and Donor-Advised Funds are not eligible to accept QCDs.
As your tax situation is unique, please consult your tax adviser before gifting appreciated stock or performing a Qualified Charitable Distribution. As your financial adviser, we’re here to help guide you through this process.
All the best,