End-of-Year Giving with Immediate Tax Benefits

November 30, 2021 - The holidays are upon us. While we prepare for the celebrations, string lights, coordinate travel schedules, and fill up Amazon carts with Christmas gifts for the family, it’s also time to make our year-end giving plans.

Cash, check and credit card are the most common ways to give and for good reason. It’s quick and easy to give cash, and the donation is available to the nonprofit for immediate use. Depending on your situation though, other giving methods could maximize your charitable impact.

As you consider your financial needs and charitable goals this giving season, we’re here to help you sort through the many options available to you.

NON-CASH GIFTS

Appreciated Securities – When you donate your appreciated securities directly to charity, you receive an income tax deduction for the full market value and avoid paying capital gains tax on the appreciated amount. If your charity of choice is not able to receive gifts of securities, you might want to consider opening a donor-advised fund (see reference guide below).

Real Estate – As with securities, when you donate real estate outright to charity, you receive an income tax deduction for the full market value and avoid paying capital gains tax on the appreciated amount. Another way to donate real estate is through a retained life estate. In this case, you can donate your property to charity but retain an ownership interest until your death. You receive an income tax deduction for the present value of the future gift while retaining for life the use and enjoyment of the property as well as the responsibility of upkeep, repairs, and maintenance costs.

IRA Charitable Rollover – At age 70 ½, you must begin withdrawing a required minimum amount annually from your retirement account (unless the account is a Roth IRA). These Required Minimum Distributions (RMDs) are treated as taxable income. At 70 ½, you are also eligible to begin making IRA charitable rollovers, or Qualified Charitable Distributions (QCDs), directly from your retirement account to charity. These QCDs count toward your RMDs but because the funds go directly to charity, QCDs do not incur income tax.

Life Insurance – You can donate your paid-up life insurance policy to charity, receive a charitable income tax deduction, and reduce your estate tax burden by removing the policy from your estate. Alternatively, you can name your charity of choice as the beneficiary of your life insurance policy, which will provide a lump sum payment to charity upon your death but without the same current income tax benefits.

GIVING VEHICLES

In addition to the gift types above, consider the giving vehicles highlighted in the reference guide below or download a copy here.

	DONOR-ADVISED FUND	PRIVATE FOUNDATION	CHARITABLE REMAINDER TRUST	CHARITABLE GIFT ANNUITY	CHARITABLE LEAD TRUST
CONSIDER WHEN	You wish to grow your giving in a tax-advantageous way with low minimums, easy administration and the opportunity to give anonymously.	You wish to build family philanthropy and a giving legacy while maintaining more direct control.	You wish to use appreciated assets to make a gift to charity and create an income stream.	You wish to make a gift to charity, take an immediate tax deduction and receive fixed income for life.	You wish to make a gift to charity while reducing gift and estate taxes on assets passed to your heirs.
HOW IT WORKS	A donor-advised fund is a charitable giving account sponsored by a public charity and funded by a donor's tax-deductible contributions. Contributions are invested to grow, and donors retain the right to recommend grants to public charities.	An individual or family provides a principal gift to establish a nonprofit organization. The funds are managed by the foundation’s directors or trustees, and the foundation supports other charitable organizations by disbursing funds through grants.	An individual or couple contributes assets to establish an irrevocable trust that makes annual distributions to the donor(s) or other individuals for the duration of their lives or a fixed term of years. At the end of the trust term, remaining assets pass to named charitable beneficiaries.	A charitable gift annuity is a contractual agreement between a donor and a nonprofit. The donor(s) contributes assets to the nonprofit in exchange for fixed annuity payments for life, or for the lives of other named annuitants (maximum of 2). Upon the death of the donor(s) or named annuitant(s), remaining assets are retained by the nonprofit. Charitable gift annuities are regulated at the state level.	An individual contributes assets to an irrevocable trust that makes annual distributions to charities for life or a fixed term of years. At the end of the trust term, remaining assets are returned to the donor or passed to the donor's family members.
SET-UP & MANAGEMENT	Can be set up within a few days and, often, entirely online. Initial contribution minimums vary, but typically are $5,000-25,000. The sponsoring organization handles all administration, and the fees vary.	The time and cost to establish a private foundation will vary but in all cases will require the involvement of legal and professional advisors. Staff and board handle management andadministration, including filing tax returns and conducting independent audits.	It is recommended that donors work with an attorney to set up. Initial contributions are typically at least $135,000 to cover annual fees. The corporate trustee will charge annual administration fees and tax return fees.	Charitable gift annuity contracts can be set up in a matter of days and are often reviewed by the donor's attorneys. Initial funding is usually at least $35,000 to cover the annual administrative fees.	A donor must work with an attorney to set up. The initial contributions are commonly significant to produce the desired gift and estate tax benefits. A corporate trustee will charge annual administration fees and tax return fees. Fees may also apply for the management of unusual trust assets. The trust is not tax-exempt. Depending on the type of lead trust, either the trust or the donor will be responsible for tax payments.
TAX ADVANTAGES	Charitable income tax deduction in the year assets are contributed. Contributions are invested to grow, tax-free. Donors can avoid capital gains tax on appreciated assets they contribute. Reduced estate tax burden when donor-advised fund is named as an estate beneficiary.	Charitable income tax deduction in the year assets are contributed. Donors can avoid capital gains tax on appreciated assets they contribute. Reduced estate tax burden when the foundation is named as an estate beneficiary.	Charitable income tax deduction in the year assets are contributed. Donors can avoid capital gains tax on appreciated assets they contribute.	Charitable income tax deduction in the year assets are contributed. Donors can avoid a portion of the capital gains tax on appreciated assets, and the remaining gain is recognized ratably over the duration of the anticipated annuity term.	Income tax or gift tax charitable deduction, depending on type of charitable lead trust. Can be an efficient way to benefit charity and pass assets to the next generation.

Your generosity this month will allow your charity of choice to continue its life-giving work. Our team of expert lawyers can help you discover the best way to achieve your philanthropic goals while maximizing the benefits to you and your charity. Call us today at 214.978.3300 to get started.