How to pick the best year-end charitable giving strategy

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As the holidays approach, philanthropic investors may be eyeing year-end gifts to their favorite charity. However, there are several options to consider with varying tax benefits, according to top advisors.

Nearly 90% of wealthy families gave to charity in 2020, according to a study on philanthropy from Bank of America, and while write-offs don’t drive most gifts, many are happy to trim their tax bill.

“The conversation starts by getting a client’s full financial picture, finding out what they’ve done in the past and their intentions going forward,” said certified financial planner Ryan Cole, vice president and director of financial planning at Bailard in San Francisco, ranking 97th on CNBC’s 2021 FA 100 list.

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Investors who itemize deductions may score a charitable write-off based on a percentage of their adjusted gross income, depending on the type of asset they give.

While someone may deduct up to 100% of their adjusted gross income for cash gifts for 2021 — and non-itemizing couples may claim up to $600 — donating cash may not offer the biggest write-off. 

The better opportunity may be donating investments worth significantly more than their purchase price because this helps clients skip the capital gains tax otherwise owed when selling.

“We look to give assets that have appreciated the most in a client’s portfolio,” said CFP Rachel Moran, a shareholder and director of personal wealth management at RTD Financial in Philadelphia, ranking 68th on the FA 100 list.

“They’re simply wiping out that capital gain,” she added.

Qualified charitable distributions

Retirees age 70½ and older may consider so-called qualified charitable distributions, which involve a direct payment to an eligible charity from an individual retirement account.

Someone may transfer up to $100,000 per year without boosting their income and it satisfies required minimum distributions for retirees age 72 and older. 

“We actually use that strategy to try and reduce a client’s income to keep them below [the thresholds] for higher Medicare premiums,” Moran said.

Of course, retirees need to weigh how much income they need before making these transfers, Cole said.

Donor-advised funds

Private foundations

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