By Steve Shook, CPA
1. Consider opening or adding to a donor advised fund. Transferring assets to a donor advised fund can allow you to receive an immediate charitable income tax deduction, generating tax benefits at the maximum amount allowed for gifts to public charities. The decision as to which charities to benefit can be extended beyond the year of the gift. Learn what an Austin Community Foundation fund can do for you.
2. Review timing of your charitable gifts. Discuss with your advisor the optimization of charitable deductions considering your projected income level and tax rate this year and next year (or future years). Cash contributions can be deducted up to 50 percent of your adjusted gross income (AGI), and the market value of appreciated property held for more than one year can generally be deducted up to 30 percent of AGI. Some limitations exist on certain itemized deductions, which can influence the level of giving. Learn what types of assets the Foundation can accepct for your fund or your favorite charity's fund.
3. Select optimal assets to give to charity. To avoid capital gains taxes and the 3.8 percent net investment income tax, consider giving appreciated property held more than one year to charity. Contrast this with the less efficient practice – the sale of the property, recognition of the gain and payment of the income tax, and contribution of the net cash to charity. Transfers of appreciated property that meet the holding period requirement provide you with an income tax deduction equal to the fair market value of the property (subject to AGI limitations). And, the tax-exempt charity can then sell the property and pay no capital gain tax. Donate stock to your fund or a charity’s fund.
4. Donate IRA distributions to charity. Individuals over age 70-1/2 are permitted to exclude from income up to $100,000 of their required minimum distribution (RMD) where the RMD is paid directly to a qualified charity. For married individuals filing a joint return, the limit is $100,000 per individual IRA owner. Most public charity recipients are considered qualified charities, while private foundation organizations and donor advised funds are not.
5. Check your beneficiaries. Many people experience a significant life event and never consider the need to update their beneficiary designations on retirement accounts or life insurance policies. Consider adding a charity, your donor advised fund or the Austin Community Endowment Fund as a partial beneficiary (5 percent or more) of your retirement account or life insurance for possible tax savings. Learn more about planning now to give later.
6. Hold an end-of-year family meeting. Consider conducting a family meeting to discuss investments and philanthropy. Family meetings are a valuable tool to engage your children and family members and share your values regarding wealth and philanthropy.
Shook, a principal with ProActive Finance Group, works with individuals, families, closely-held businesses and private equity groups. Shook served as a member of Austin Community Foundation's Board of Governors for seven years, and he chaired the Board from 2011 to 2013. Shook has a donor advised fund at Austin Community Foundation.