Giving Strategies Offering Tax Benefits August 21, 2018

I am constantly amazed at the generosity of our Tri-City community. There are many great nonprofit organizations that are committed to making our community a better and safer place to live.  Even though our community is very generous, organizations continue to look for new donors, and for existing donors to increase their contributions, because the need seems to get larger every year. With the new tax laws taking effect in 2018, many nonprofits are concerned that donor contributions will decline because the standard deduction for individuals is $12,000, head of households is $18,000, and married filing jointly is $24,000. I generally feel that people donate to the causes they are passionate about regardless of taxes, but tax reduction could certainly be an incentive. I have outlined a few strategies below that may be tax beneficial even if the tax payer uses the standard deduction:

Qualified Charitable Distributions – IRA owners that are age 70 ½ or over can make a non-taxable distribution directly to a qualified charity. The distribution can help satisfy or completely satisfy the required minimum distribution. For instance, if the required minimum distribution is $20,000, and $8,000 was given directly to a qualified charity, the remaining amount to satisfy the minimum distribution would be $12,000. A 1099-R would be issued for the distribution, of which only $12,000 would be taxable.

Giving Appreciated Securities – Donating appreciated securities instead of cash may reduce the amount of capital gain taxes that may need to be paid.  For example: an investor purchased 500 shares of Amazon in January of 2003 for $20 per share for a cost basis of $10,000. At today’s price of $1,742 per share (7/10/2018) the investment is now valued at $870,000. If the investor wanted to donate $20,000 to charity, they could sell $20,000 of their Amazon stock, and donate the cash. At a 15% capital gains rate, the $19,770 gain would generate $2,965 in taxes.  If the investor donated approximately 12 shares of Amazon stock, the charity would receive a gift of similar value, and the donor would not have to pay the capital gains tax.

Split Interest Gifts – The two most popular split interest gifts are the Charitable Lead Trust and the Charitable Remainder Trust. In a Charitable Lead trust, the charity has a right to receive payments for a period of time, stated in years or lives, or both.  Once the term has ended, the non-charity beneficiaries receive the remaining trust principal. The Charitable Remainder Trust is essentially the opposite. The trust provides a specified payment annually to a non-charitable income recipient, with the remainder going to at least one charitable recipient. These instruments can be quite complicated and require competent professionals to establish them properly in accordance with Internal Revenue Service regulations.

Most charitable organizations have an account set up to receive cash directly (in the case of the Qualified Charitable Distribution) and appreciated investments. If you want to make a contribution of this type, it is best to contact the charity to receive their banking instructions so the cash or securities can be transferred electronically. In any of these donation techniques, it is important to ask your tax and legal professionals if the strategy is appropriate for you.

Scott Sarber - Petersen Hastings
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